Yahoo! (NASDAQ:YHOO) reports fiscal fourth quarter earnings on Tuesday, January 28th, after market close. The whisper number is $0.40, two cents ahead of the analysts estimates. The eleven whisper numbers we've collected from investors range from a low of $0.36 to a high of $0.50. Yahoo! has a 72% positive surprise history (having topped the whisper in 37 of the 61 earnings reports for which we have data).
Trading on an earnings event requires an understanding of post earnings price movement, both after hours and intra-day. We'll take a look at the average post earnings price movement, when those moves occur, and if Yahoo! presents an earnings trade opportunity.
Since Yahoo! reports earnings after market close, it's important to look at after hours trading activity. Over the past four quarters the average price move in after hours trading following their earnings reports is +1.4% (down from +2.3% last quarter), and over the past eight quarters the average price move in after hours trading following their earnings reports is +1.6% (down from +1.9% last quarter). In other words if you took a long position prior to the past four earnings reports you were on the right side of the trade in three of the four trades, and if you took a long position prior to the past eight earnings reports you were on the right side of the trade in six out of eight trades.
The average price move during next available intra-day trading (market open to market close) for the past four quarters is -0.6%, a very limited and negative price move. The average price move within five trading days for the past four quarters following their earnings reports is -0.2%, a very limited and negative price move. So Yahoo! gives back some overnight gains in the five trading days following earnings.
Longer term earnings analysis (last four years of earnings) shows the company tends to see (on average) price movement of -0.6% (intra-day) in one trading day following their earnings report, -0.5% in five trading days, -1.6% in ten trading days, -2.3% in fifteen trading days, and -8.8% in twenty trading days.
Yahoo! topped the whisper number last quarter by $0.02, and topped again in the prior quarter by $0.03. The company has not reported earnings short of the whisper number since Jan. 2011.
When considering all quarters for which we have a whisper number, the best timeframe for positive returns is no where to be found - Yahoo! is considered a negative reactor (beat the whisper number and see weakness, miss and see weakness) when the company reports earnings. The 30-day price reaction for the 37 quarters that Yahoo! has topped the whisper shows an average price move of -1.3%. And for the 22 quarters it has missed the whisper number, an average price move of -6.7% in thirty trading days following earnings.
Other factors that may influence post earnings price movement;
The majority of investors polled are expecting the company to provide a positive outlook:
- Positive 78%
- Neutral 22%
- Negative 0%
Compare this to last quarter's expected outlook:
- Positive 40%
- Neutral 60%
- Negative 0%
Yahoo! has a 72% positive surprise history (having topped the whisper in 37 of the 61 earnings reports for which we have data).
Summary: Over the past four quarters Yahoo! has topped the whisper number three times. The current whisper number is above the analysts estimate, showing some confidence from investors. The key to playing Yahoo! earnings, however, is the expected price reaction. Historically the after hours move is negative to neutral averaging +1.4% to +1.6% (but this is trending lower). The stock tends to stay flat to limited negative over the next five to twenty trading days. The stock then sees weakness through thirty days (averaging -4%). These averages should be trending higher due to the recent price strength, but post earnings price moves are moving against that trend. Can Yahoo! top the current whisper number showing a strong expectation? Averages say yes, and recent earnings reports support that. But the data also shows a limited negative price reaction short term. More post earnings price movement and historical data can be found here.
What are your earnings expectations? Let us know in the comments section below or visit whispernumber.com.