Stocks’ prices are affected by many factors that cannot be controlled all at once, mainly we can think about the most influential ones as a group of how investors feel about that certain stock. Earnings reports must be published by publicly traded companies in the U.S on a quarterly and on an annual basis. These reports are official financial documents issued by the company itself that shows expenses, earnings and overall profit in a certain period. They provide a periodic update of a company’s financial statement along with an income statement, cash flow statement and balance sheet.
Investors can use a company’s earnings report as an indicator of performance and financial position of the company, however the report usually gives an overly positive idea of the financial situation and therefore investors must be able to correctly decode an earnings report to understand the real company’s performance.
The earnings report is on the most influential elements for variations in stock prices, it can even shake up the market if large stocks are involved. On the day of the release of earning reports stock prices go through record highs and lows before settling down. When earnings exceed the estimate of market analysts its share prices rise, while when earnings are lower than expectations a decrease of the company’s share price will follow. Earnings move stock prices over the long run, while in the short-term the stock market operates on a supply-and-demand basis meaning that even if a company reports great earnings its stock price might move based on external factors.
Generally we can say that earnings reports provide investors with a chance to judge a company’s performance, these financial results can have a serious impact on the stock’s price, resulting in volatility.
Case study: Nordstrom (JWN)
On 22th November Nordstrom’s stock fell 5% after third quarter sales missed analyst estimates, following the general pullback in discretionary spending that affected most retailers last month.
Third quarter revenue reported a year-over-year decline of more than 6% and gross merchandise valued dropped 7%. Sales held up better, decreasing less than 2%. This all happened despite operating income and earning per share surpassing expectations. Nordstrom joins a long list of retailers hit by a recent warning of slowdown in consumer spending, while others like Macy’s and The Gap reporting impressive results in the previous two weeks.
Case Study: NVIDIA Corporation
Nvidia (NVDA) recently released its third-quarter earnings, beating Wall Street expectations.
The company reported adjusted earnings per share of $4.02 on revenue of $18.12 billion, exceeding analyst projections of $3.36 EPS on $16.1 billion revenue. The revenue increased by 34% from the prior quarter and an impressive 206% from the previous year, indicating the soar in demand for AI technologies.
For the current quarter, Nvidia’s revenue guidance of $20 billion, plus or minus 2%, also outpaced estimates, with analysts projecting $17.8 billion for the fourth quarter.
Despite the strong financial performance, Nvidia’s stock dipped around 3% following the earnings report. CEO Jensen Huang attributed the company’s growth to accelerated computing and AI, particularly in consumer internet and cloud service sectors, foreseeing emerging trends and advancements in AI clouds. However, the market reaction was tempered as Nvidia acknowledged new restrictions on chip exports to China, which could impact their sales significantly.
The stock market response to Nvidia’s earnings was subdued, despite the company hitting a record high stock price of $504.09 per share the day before the earnings release. The stock had shown significant movement in previous earnings releases, notably hitting all-time highs following impressive second-quarter results earlier in the year.
Nvidia’s performance holds significance not only for the company but also for the broader market. It has been a prominent player among the “Magnificent Seven” stocks, including major tech giants like Apple, Alphabet, Microsoft, Amazon, Meta, and Tesla, driving considerable momentum in the stock market this year compared to the rest of the S&P 500. Together, these stocks outperformed significantly, gaining over 70% through mid-November, while the remaining 493 stocks in the S&P 500 rose by only 6%.
Case Study: Amazon
Amazon reported better-than-expected financial results for the September quarter, boosting its shares. The company’s adjusted earnings were 94 cents per share, exceeding the expected 59 cents, while revenue reached $143.1 billion, higher than the estimated $141.5 billion. Amazon’s Amazon Web Services (AWS) saw a 12% increase in sales to $23.1 billion, slightly missing analyst expectations of $23.2 billion.
CEO Andy Jassy noted that despite ongoing cost optimizations by companies amid economic uncertainty, AWS experienced increased deal-making momentum late in the quarter and into the current month. This reassured investors, leading to a 6.8% increase in Amazon’s stock price.
Amazon projected sales between $160 billion and $167 billion for the fourth quarter, slightly below analysts’ expectations of $167.1 billion. Despite a revenue miss for AWS, Amazon’s stock climbed after-hours, contrasting with Alphabet’s Google, whose cloud revenue miss impacted its shares earlier in the week.
The company’s AWS operating income surged by 29% year-over-year to $6.98 billion, surpassing Wall Street estimates. However, AWS’s revenue growth remained relatively flat, consistent with some analysts’ predictions.
Authors: Simona Merlo and Luca Sesena