I used to think weathermen were the only people that got paid really well for being wrong - then I learned how Wall Street predicts quarterly earnings numbers ... and how often they come up way short.
Part of the problem is a misalignment of incentives, the primary motivation of a sell side analyst is NOT to be accurate. The accuracy of Wall Street earnings expectations are crippled by a "don't stray from the herd" mentality. As long as they keep their estimates in-line with one another, then no one can be singled out for poor performance. Sometimes they all underestimate how much money a company will make.
We crowd source data from over 3,300 buy side and independent analysts, industry experts, students and non professionals. By tapping into a wider distribution of contributors we have created a bigger data set that is more representative of the market's actual expectations and is more accurate than Wall Street 65% of the time.
Here are our top five examples from the past quarter of how Wall Street sandbagged their numbers and had their earnings expectations crushed.
1. Goldman Sachs (NYSE:GS)
The green line represents profit per share from Goldman Sachs which has outperformed the Wall Street consensus in each quarter over the past two years. The blue line representing the Estimize community consensus has been more accurate in forecasting Goldman's EPS every time and our contributing analysts are expecting Goldman to outperform Wall Street again in January.
2. Google (NASDAQ:GOOG)
In October Google stock surged more than $100 per share after beating analyst expectations by reporting $10.74 EPS while Wall Street was only predicting $10.35. The Estimize community had more faith in the search engine and internet services giant, and our EPS forecast was $10.45.
3. Priceline.com (NASDAQ:PCLN)
Priceline is another stock that crushed analyst expectations in the past quarter. In November Priceline.com reported $17.30 EPS while Estimize predicted $16.42 and Wall Street was only at $16.20. The stock is up over 15% since the report. Over the past seven quarters the Estimize consensus has been more accurate in forecasting Priceline's profit all seven times.
4. Take-Two Interactive Software (NASDAQ:TTWO)
The video game development company's Grand Theft Auto and Bioshock franchises were both big winners this year. Our analysts expected Take-Two Interactive Software to beat Wall Street by a wide margin, but TTWO went above and beyond all expectations. In October it reported $2.49 EPS while the consensus from Estimize was calling for $1.87 and Wall Street was lagging behind at $1.65.
5. REGN (NASDAQ:REGN)
Regeneron Pharmaceuticals is a biotech company which originally focused on neurotrophic factors and regenerative medicine. Over the past year they have beaten Wall Street each quarter as predicted by our community of buy-side and independent analysts.
The algorithms that create the Estimize consensus aren't concerned with how or why users arrive at their estimates, we take a philosophically agnostic view to the qualitative reasoning behind estimates due to our ability to measure so well statistically. Whether professional analysts are running a full earnings model, or an average joe has a hunch that the company will report solid numbers, all expectations are valid and belong inside the system.