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Market Structure

Earnings Report

A quarterly financial report that publicly traded companies must file, showing revenue, profit, and guidance. The single biggest catalyst for stock price moves.

What is an Earnings Report?

An earnings report is a quarterly disclosure that every publicly traded company must file, showing how much money the company made (or lost) over the past three months. Earnings reports are the single biggest source of stock price volatility. A stock can gap 10-20% overnight based on whether the numbers beat or miss expectations.

What is in the report

  • Revenue (top line): total money the company brought in from sales
  • Earnings per share (EPS): net profit divided by the number of shares outstanding. This is the number that gets the most attention
  • Guidance: the company's forecast for future quarters. Guidance often matters more than the current quarter's numbers
  • Margins: profit margins show how efficiently the company converts revenue to profit

Beat, miss, and the reaction

  • Beat: actual EPS and revenue come in above analyst estimates. Usually bullish, but the stock can still drop if guidance is weak
  • Miss: numbers come in below estimates. Usually bearish, but the stock can still rally if guidance is strong
  • In-line: numbers match expectations. The reaction depends on guidance and the earnings call tone
  • Sell the news: sometimes a stock runs up into earnings and drops after reporting, even on a beat. The move was already priced in

Trading around earnings

  • Holding through earnings is a gamble: the gap can go either way regardless of how good the setup looks. Many traders close positions before the report
  • Post-earnings gap trades: some traders only trade the reaction after the report is public, avoiding the overnight risk
  • Earnings season: reports cluster in January, April, July, and October. During these weeks, expect higher volatility across the market
A company can beat on earnings and revenue and still drop 15% because their guidance for next quarter disappointed. Always pay attention to the forward-looking statements, not just the backward-looking numbers.

Related Terms

Guidance

A company's forward-looking forecast of future revenue and earnings, provided during earnings reports. Often moves the stock more than the actual quarterly numbers.

Implied Volatility (IV)

A measure of how much the market expects a stock to move, derived from options prices. High IV means the market expects a big move. IV crushes after the event.

Revenue

The total money a company brings in from sales before subtracting any costs. Also called the "top line" because it is the first line on the income statement.