What is earnings season? 🤔
An earnings season is a period when most public companies (i.e those listed on a stock exchange) release their earnings reports. These reports detail some key figures that give an idea of how a company’s performing, such as revenue, earnings per share (EPS) and net sales.
Example: let’s say you want to buy shares of XYZ Corp, which currently has a total net income of £1,000,000. If the company has 50,000 shares in circulation, this would give XYZ Corp an EPS of £20 (£1,000,000/50,000).
For more on earnings-per-share, visit our article on 3 ratios that help you buy and sell shares.
US companies are required to produce earnings reports every quarter, but UK companies have no such obligation. However, many UK companies choose to take part in earnings seasons due to the increasingly global nature of many sectors.
When is earnings season? 🤷
There are four earnings seasons each year, and these typically fall in January, April, July and October. This is because they’re just a few weeks after the final month of each financial quarter – Q4 ends in December, Q1 in March, Q2 in June and Q3 in September. So this just gives companies a bit of time after each quarter ends to pull together their earnings reports.
Not all public companies release their reports during these periods, as not all companies stick to the same financial quarters. However, most big companies tend to keep pretty close to that schedule.
How long does earnings season last?
Earnings season usually lasts for a period of six weeks. So, for example, Q1 earnings season kicks off in early January and ends around the middle of February. Companies intentionally try to space out the release of their reports, so investors and analysts can handle the volume of news.
Here’s when some popular stocks are expected to release their Q1 earnings reports*:
19th Jan: NFLX
24th Jan: MSFT
25th Jan: TSLA
26th Jan: AAPL
1st Feb: META
2nd Feb: AMZN
8th Feb: UBER
*No dates formally announced
Earnings announcements are usually made outside of market hours so the reports reach as many people as possible and don’t interrupt the trading day. This means they’re either released early in the morning before the market opens, or in the afternoon after the market closes. This gives investors plenty of time to sift through the news and choose how to respond.
Why should you care about it? 📈📉
Simply put, the financial results included in an earnings report can make a huge difference to a stock’s price, as they can significantly influence how people feel about a company’s prospects. The figures will inform analyst recommendations, which often play a big role in whether people decide to buy or sell the stock. This means that quarterly earnings reports can actively change the direction of a stock’s price.
The figures themselves aren’t always that important. What investors are looking for is how close the figures are to analysts’ expectations. The simple logic being that if the numbers are above expectations, the stock could rise, but if the figures are below expectations, the stock could fall.
Example of earnings affecting a stock’s price
Apple is one stock that regularly responds to earnings announcements. If we look at its earnings report from January 2022, the company largely exceeded analyst expectations:
Revenue: $123.95 billion vs $119.05 billion expected
EPS: $2.10 vs $1.90 per share expected
iPhone: $71.6 billion vs $67.7 billion expected
iPad: $7.2 billion vs $8.1 billion expected
Mac: $10.8 billion vs $9.5 billion expected
Apple's stock jumped more than 1% immediately after the announcement. However, when the company fell below expectations on several key categories in October 2022’s earnings report, the stock dropped by highs of 3%.
Revenue: $90.15 billion actual vs $88.64 billion expected
EPS: $1.29 actual vs $1.26 expected
iPhone: $42.63 billion actual vs $42.67 billion expected
iPad: $7.17 billion actual vs $7.81 billion expected
Services: $19.19 billion actual vs $19.97 billion expected
While the beats on revenue and EPS were encouraging, the miss on Apple’s big-ticket products and services was clearly a concern for investors.
We should note that earnings reports are just one piece of the complex machinery that makes stock prices move. And just because a stock’s behaved one way after past earnings announcements doesn’t guarantee it’ll do the same thing in future. For instance, Apple stock has also fallen after positive earnings reports, and vice versa.
But by understanding what earnings reports are – and how they can influence prices – will only help you become a more informed investor.
For more on stocks and shares, visit our articles on when is the best time to buy and sell stocks?
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As with all investing, your capital is at risk. Past performance does not guarantee future results.