What is a "Whisper Number" And Why is it Important?

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You may have heard this term being used on television or on an online financial news site and wondered what exactly it meant.

Well, let's take a company that will soon be reporting earnings. This company is called XYZ Inc., and trades under the XYZ symbol on the New York Stock Exchange.

Analysts following the company have an official annual and quarterly earnings estimate for the company that they make public. They construct these expectations based on many different points of data, including company conference calls, previous earnings reports, market trends, sector strength, etc.

The problem is that many companies tend to "manage" their earnings expectations. Meaning, they will purposely project conservative earnings expectations so that they can beat those expecations on a quarterly and annual basis. No one wants to invest in a company that is missing earnings expectations, no matter how robust those earnings are. So companies will manage expectations in order to "beat" earnings each quarter. Being able to tell mutual fund and hedge fund managers that we have "beat quarterly expectations 14 quarters in a row" is quite a powerful market tool for bringing new investors to the company.

Anyways, analysts will publish their earnings expectations for a company, however they will often project their own "real" expectations via a "whisper" number. These are unofficial and unpublished projections, hence the word "whisper". "Whisper" numbers aren't restricted to just analysts either; individual investors play a major part in forming a "whisper" number for a company. A "whisper number", broken down to its simplest definition, is an unofficial prediction for a company's earnings that usually deviates from "published" earnings predictions.

Let's take a real-life example, as that might make it easier to explain.

Google is set to report Q1 earnings. The consensus amongst analysts is that Google will earn $3.74 per share on $100 billion in revenues (random numbers that aren't real). Many in the investment community feel that these numbers are low, based upon an improving economy, increased Internet advertising and increased Google market share. An unofficial "whisper" number for the quarter is $3.88 per share in earnings and $105 billion in revenues.

The whisper number is important because if a company beats "official" earnings expectations but misses the whisper number, the stock will normally trade lower, as the consensus public projections were missed. People wonder how a stock could beat official earnings expectations but actually trade lower - this is sometimes the reason why.

Next time you hear the term "whisper number" on CNBC, this is what they are referring to. Unofficial earnings numbers born out of trading desk chatter and online speculation.
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