By Marek Fuchs
Tech giant Oracle (ORCL) reports its fiscal third-quarter after the close of trading on Wednesday and the consensus estimate is for 66 cents a share.
But that’s certainly not the whole story. Wall Street, after all, is a craven place where the consensus rarely tells the true tale. And, in fact, Oracle’s so-called "whisper" number stands at 68 cents per share.
What's the whisper number and how should you handle its existence, if it in fact exists? Strap yourself in for a moment. There are no easy answers when it comes to whisper numbers, an ever-morphing phenomena.
The estimate that dare not speak its name
Whispers are, traditionally speaking, the estimate that dare not speak its name. In other words, there is the official estimate, taken by finding the average of all major analyst estimates. And then there is the whisper number, which goes beyond the official average.
Traditionally, this number was all but whispered in the wind – and there is an age-old tradition of these "quieter" numbers on Wall Street, particularly for stocks such as Apple (AAPL) and IBM (IBM). Often times, analyst hedge, keeping their old numbers in their official reports but hinting at more (or less, for that matter) to big investors. Either way, then, the clever little devils are right. Other times, big traders or small analysts (or pseudo-analysts such as influential bloggers) are running ahead (or behind) conventional Wall Street analysts.
These days, though, with the increased availability of information and democratization of trading, whisper numbers, though a bit tricky to calculate, tend to be more accessible than ever before. Go to earningswhispers.com, for example, plug in Oracle, and you will see it clear as day: 68 cents.
But that doesn’t mean the media are catching on, and this is a big oversight. Stocks are expectation machines – they react according to what was expected – so investors need to know what traders "in the know" do. But because whisper numbers are a bit ethereal, the media, which always favor the utterly tangible, tend stay clear of them.
That is: they stay clear of telling you about the whisper numbers. But they are still obviously informed by them.
Read between the lines
Read between the lines and you’ll see the abundant existence of whisper numbers in the media's preview coverage of Oracle’s third quarter. It’s not stated outwardly, only as an unsaid subtext.
Investor’s Business Daily, for example, ran a story in the lead-up to Oracle’s earnings with this headline: Oracle Could Report Better-Than-Expected Q3 Earnings. They made no mention of the whisper numbers but, in showcasing the possibility of a beat, seem to have been spun by them.
Similarly, TheStreet points without subtlety toward a potential Oracle home run in an article titled Misunderstood Oracle May Pleasantly Surprise Investors. Curiously enough, the author notes that he’s expecting close to 70 cents a share but neglects to mention that a good measure of the investing public is right there with him in expecting more than the officially anticipated 66 cents.
And that’s key: with stocks reacting against expectations, investors need to be completely informed. A media that allow themselves to be shaded by whisper numbers without letting you know they’ve been influenced – and how many are standing with them – do traders a disservice as they shroud their sources.
A big deal
Moreover, the fact that there are high expectations for Oracle’s third quarter is a big deal – made more so by the fact that CEO Larry Ellison has promised a lot. With the company’s hardware business suffering, Ellison said on last quarter’s conference call that hardware will be “turning the corner” in the third quarter and actually growing its top line in Oracle’s all-important fourth quarter, traditionally their busiest.
With Ellison promising a lot and traders expecting a lot – a goodly length more than has been officially acknowledged – the reaction to a disappointment might be amplified, as the reaction to a beat might be muted.
You can dust the media for clues, though, and you won’t hear much about the whisper numbers that might hold so much sway.
The Silicon Valley Business Journal gives us 5 things to watch in Oracle earnings on Wednesday but nowhere on their watch list, which includes international, mobile and the Acme Packet acquisition, is the basic and perhaps defining fact that some traders are expecting a whole different set of numbers. Same goes for CNBC, which previews three of the more important elements of the report – but provides nary a whisper about whispers.
So let’s do your portfolio a favor, investors, and shout the existence of whispers to the skies. They matter more than the media seem to say they do.
Marek Fuchs was a stockbroker for Shearson Lehman Brothers before becoming a journalist who wrote The New York Times' County Lines column for six years. Fuchs speaks regularly on business and journalism issues at venues ranging from annual meetings of the Society of American Business Editors and Writers to PBS to National Public Radio. His recent book, "Local Heroes: Portraits of American Volunteer Firefighters," earned widespread praise. He is on the writing faculty at Sarah Lawrence College. When Fuchs is not writing or teaching, he serves as a volunteer firefighter. You can contact him on Twitter: @MarekFuchs.
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