What is the “whisper number”?

“The whisper number” is an estimate of soon-to-be-reported quarterly earnings that is passed from market participant to market participant by word of mouth.   It usually emerges for widely-followed stocks in the week or two before a company earnings announcement is scheduled.  It is typically significantly above the published consensus of Wall Street analysts and possibly significantly above the highest published estimate.  Often, when  judging whether reported earnings are “surprisingly” good, the market uses the whisper number rather than the written consensus.  Tis can result in the apparent oddity that a company reports earnings that beat the written consensus, yet the market treats this as a negative surprise.

Where does the whisper number come from?

There are two sources:  trading desks and an individual analyst.

1.  Traders often float rumors about stocks in order to create trading interest.  In the US market I’ve found these to inevitably be false, and to be calculated to further the fortunes of the trader who launches them.  This can come either by creating trades or by enhancing the value of a positon the trader holds.

2. Analysts will typically put their highest probability guess for company earnings in their written reports.  They may, however, have a less probable but still possible estimate, usually a higher one, that they have less confidence in.  Sometimes they will include this higher number in their written work, sometimes they will include it in their oral presentations, sometimes they will only mention it in response to a client question.  If the analyst is prominent enough, this may end up being the whisper number.

There is also a less savory possibility, though.  Many companies issue official earnings guidance, both for the year and for the upcoming quarter. For almost all companies, these tend to be on the conservative side. Some companies, however, expect  analysts to adhere very closely to the official guidance.  the companies reason that when the actual numbers come in better than the Wall Street consensus (which they are attempting to manipulate), their stock price will go up.

The company can do a lot of things to enforce its wishes.  It can, for example, limit the offending analyst’s access to top management, return his phone calls only slowly, not allow the analyst’s questions on conference calls, visit large holders of the stock only with rival firms, or it can badmouth the analyst to his firm or to large holders of the stock.  Since the analyst’s stock in trade is his superior knowledge of his coverage industry and his privileged access to management, these signs of disfavor can be harmful to the analyst’s career.

The analyst’s response to such a company’s implied threats is to publish the number the company wants, but to transmit his “real” number by word of mouth.

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