Wall Street is now past the half-way point of this earnings season and the results have been pretty impressive thus far in terms of beating expectations. Thus far, 286 members of the S&P 500 have reported results and according to FactSet, 73 percent have topped both the earnings and revenue estimates.
While that stat is impressive, Zacks expresses earnings beats in a different fashion. They show that 57.7 percent have beaten estimates on the top and bottom line. The percentage of companies beating isn’t as high as FactSet’s number, but the chart shows how well companies have done compared to the first quarter and the last few years.
You could argue that companies beating earnings estimates is nothing new as most companies have become very adept at managing expectations and usually set themselves up to under-promise and over deliver. This is why the reaction to the earnings report is much more important and while the overall number of earnings beats may be on a record pace, the reactions have varied greatly.
If you want to see how mixed the reactions have been, just look at the FANG stocks. Facebook (Nasdaq: FB) and Netflix (Nasdaq: NFLX) both gapped higher after their earnings reports while Amazon (Nasdaq: AMZN) and Alphabet (Nasdaq: GOOGL) both gapped lower after their reports.
FB beat on both the bottom and top line and gapped 5.5 percent higher. GOOGL beat on both the top and bottom line and gapped down by 2.8 percent. Both companies beat earnings estimates with FB posting earnings 16 percent higher than estimates and GOOGL surprising by 11.2 percent.
What this suggests is that a company might be able to manage the estimates made by analysts, but they can’t necessarily manage the sentiment investors have toward their stock. If investors are overly optimistic heading in to an earnings report, it becomes difficult to impress investors enough to move the stock higher. It could be argued that this was the case with GOOGL. Conversely, if the sentiment is relatively pessimistic, it becomes easier for a stock to climb.