A whisper number refers to the purported, unofficial, and unpublished earnings per share (EPS) forecasts of professional traders and fund managers. The whisper number can also be applied to any news or data release in any market. Essentially, it represents the unofficial consensus on what earnings and revenue for a company will be at the next announcement.
Key Takeaways
- The whisper number is the unofficial expectation of what a news release will be.
- This sometimes differs from the officially published analyst forecasts.
- Market prices often react relative to the whisper number, since the whisper is what traders believe and have acted on, or will act on.
Understanding the Whisper Number
Earnings forecasts are based on analyst expectations. Analysts usually align their forecasts closely with each other to avoid standing out if their predictions are inaccurate. Staying on the same track helps preserve their professional reputation. In contrast, whisper numbers reflect what analysts, traders, and fund managers truly think but hesitate to publish. If their predictions turn out to be wrong while differing noticeably from the consensus, it could harm their careers.
Whisper numbers become particularly useful when they differ significantly from the consensus forecast, as they can help identify potential earnings surprises or disappointments. However, their relevance hinges on their accuracy. Until the actual announcement, it’s anyone’s guess whether the whisper number or the consensus estimate will be more precise.
Whisper numbers are not infallible. If a whisper number is higher than the consensus estimate, investors might buy stocks ahead of the earnings release. If the actual earnings fall short of the whisper number but exceed the consensus, stock prices might drop nonetheless. Conversely, if the earnings surpass the whisper number, stocks usually surge regardless of what consensus estimates were.
Whispers in the Financial Sector: Myths and Realities
In the past, whisper numbers often derived from brokers’ inside tips to their wealthiest clients. Increased regulatory scrutiny, such as the Sarbanes-Oxley Act, now imposes stricter guidelines on how companies disclose financial information, severely limiting the dissemination of such insider data.
Questions have arisen over the legitimacy of historical whisper numbers, with some brokers calling the concept a myth. Today, whisper numbers stem more from individual opinions and assessments rather than broker input. They’re shared through various websites and social media chatter. Despite the digitization of such whispers, predicting earnings remains uncertain and sometimes irrational.
An Illustrative Example of Whisper Numbers
Imagine that Apple Inc. (AAPL) has a consensus earnings forecast for the quarter of $5 per share. Based on their unofficial analysis, traders may believe the earnings to be around $6 per share. Accordingly, the stock price is likely to increase, reflecting this higher figure.
Should Apple’s earnings hit the coveted $6 per share, reaction might be mild since expectations were already driven by the whisper number. If Apple surprises everyone with $7 per share, a significant stock jump follows. But even with a consensus-aligned $5 per share, falling short of the whisper number could spur a sell-off.
However, predictions aren’t devoid of risks. External market conditions, like a sudden downturn in stock index futures, might also negatively impact the stock’s performance, regardless of whether EPS surpasses or fails to achieve the whisper number.
Related Terms: Earnings Per Share (EPS), Consortium Estimate, Earnings Surprise, Revenue.
