Quarterly Earnings

A year has four quarters, meaning four periods of three months each. Companies whose shares are traded on the stock exchange must regularly disclose how their business is doing. That’s exactly what Quarterly Earnings are: a report on revenue, costs, and profit from the last three months. Almost always, this comes along with explanations from company leadership and often an estimate of how the next quarter is likely to look. For investors, this is the most important regular glimpse into a company’s inner workings. The figures usually arrive a few weeks after the end of the quarter and are announced beforehand down to the exact day.

Why four dates a year move stock prices

The price of a stock depends on what buyers expect from the company’s future. These expectations are pure speculation until the reporting day. Quarterly earnings replace speculation with audited figures. That’s why stock prices often jump by several percent on such days, sometimes even by twenty or thirty.

What matters here is not whether a company made a profit. What matters is the deviation from what the market had expected. Analysts at major banks issue estimates in advance, from which an average value is formed. If the result comes in above that, it’s called a beat; if it comes in below, it’s called a miss. A record profit can send the stock price falling if an even higher record had been expected.

For technology and AI companies, these dates are especially charged. They spend a lot of money on data centers before they can even earn anything from it. Investors use quarterly earnings to check whether the spending is now generating revenue.

What’s actually in such a report

Two figures are at the center. Revenue is everything the company has taken in, often called the top line because it sits at the top of the table. Profit is what’s left after deducting all costs, correspondingly called the bottom line. Profit is often broken down per individual share so that companies of different sizes can be compared.

Large corporations additionally break down their figures by division. For a chipmaker, for example, you can see separately how much the data center business brought in and how much the gaming graphics card business brought in. The margin is also interesting: it indicates what share of revenue ultimately remains as profit. A declining margin alongside rising revenue means that growth came at a high cost.

After the release comes the earnings call, a conference call with company leadership. There, questions from analysts are answered, and often the most important sentence of the day is spoken there: the forecast for the coming quarter, known in English as guidance. A cautious forecast can completely overshadow good numbers.

Earnings season in the news

Four times a year, almost all major companies report within just a few weeks. This phase is called earnings season and traditionally begins with the big US banks. During this time, financial news is full of phrases like “beats expectations” or “disappoints on outlook.”

If you read in such reports that a company loses ten percent after market close, that’s due to one detail: most US companies deliberately release their figures outside of trading hours. Trading then continues in what’s called after-hours trading, with fewer participants and therefore sharper swings. By the next morning, the reaction is often already somewhat milder.

A common misconception is that quarterly earnings are the same as the annual report. The annual report is significantly more extensive and is reviewed by external auditors. Quarterly earnings are shorter, faster, and in Europe sometimes less strictly regulated than in the US. Nevertheless, for day-to-day reporting they are the more important source, because they provide an up-to-date picture.