Why Earnings Just Don’t Make Sense (Part 1)

Earnings just don’t make sense to me with regard to stock price movement.

While I have seen many anecdotal instances to support this hypothesis, I will use one example to keep this blog series short: Google 2013 Q4 results, which were reported on January 31, 2014. I will present three reports on the earnings announcement.

In no particular order, here is Report #1 from Zacks:

> Google Misses, Shares Up Regardless
>
> Google Inc (GOOG) reported fourth-quarter earnings of $9.93,
> missing the Zacks Consensus Estimate by 41 cents, or 4.1%…
> shares jumped 4.1% after-hours, after rallying 2.6% during
> the day. Google’s gross revenue came in at $16.86 billion…

Here is Report #2 from The Motley Fool:

> Google and Amazon Earnings
>
> Google earnings top expectations. Google this: Shares of
> the search engine that you probably used two minutes ago
> jumped more than 4% in after-hours trading Thursday, after
> Google (NASDAQ: GOOG ) reported a projection-beating
> $16.9 billion in revenues last quarter.
>
> The takeaway is that Google’s earnings figures were
> pretty hot…

Here is Report #3 from The Verge:

> Google Q4 2013: strong revenue growth driven by Play
> Store and hardware sales
>
> The search giant missed earnings expectations by a
> wide margin but wasn’t punished by traders.
>
> It seems like Google can do no wrong with the markets
> these days. The consensus estimate on Wall Street was
> that Google would deliver $16.75 billion in revenue
> and earnings of $12.26 a share. It hit the top of that
> line, with $16.86 billion in revenue, but missed on
> the bottom with earnings of $12.01 a share. Still,
> the stock was up slightly in after-hours trading.
> Google made $14.4 billion in revenue and earned
> $8.62 a share for this same period a year ago. Last
> quarter Google brought in $14.8 billion and earned
> $10.47 a share.

I will compare and contrast Report #1, Report #2, and Report #3 in the next post.