On the Money?
Hauck may have a point about the relative accuracy of whisper numbers. In 1999, Purdue University professor Susan Watts, along with two co-authors, found that the First Call consensus tended to be more pessimistic and less accurate — about 6.1 percent below reported earnings per share, whereas the postings were 4.9 percent above the actual results. "The whispers tended to be too optimistic, but closer in absolute terms," Watts explains.
Hauck confirms that the whispers on his site show a similar bias on the high side, but contends that the merit of whisper numbers is not in how well they predict actual earnings. "Stock movement is what will deem us a valuable indicator to investors," he says.
Overall, the stock rises for a company that beats the whisper number and falls for a company that misses more than 60 percent of the time, according to statistics compiled by WhisperNumber.com from the whispers published on the site. In sectors such as biotechnology, the correlation is closer to 100 percent. Also, in the finance, Internet, and technology sectors, a stock will fall more than 80 percent of the time over a five-day period when earnings beat the analyst consensus but fall short of the whisper number.
Scott Rosen of IBES finds such data less than convincing in a historic bull market, where companies have tended to surprise on the upside. "The question is, Is there any value in the whisper number?" he asks. "Or is it simply made up of people who are more optimistic than analysts, and because the market is generally doing well, their predictions become a self-fulfilling prophecy?"
Given the recent market volatility, it will be interesting to see how well whisper numbers can predict stock movement during the upcoming earnings season this month. As for CFOs who may feel they have no way of managing the mass of online investors who might submit a whisper number, perhaps what is needed is a further democratization of disclosures.
"To manage the process, companies need to be more open," says WhisperNumber.com co-founder John Scherr. "They fear they have no way of managing the whisper number, but all they have to do is step up their disclosures to the public via the Internet and market them better. I can envision a company with an accounting system that can report real-time, live on the Internet, their key performance indicators. What would that do for our business?"
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