So, we’re midway through earnings season, and as you’ve probably seen, we’ve covered a majority of the big companies that have reported thus far: Alphabet, Twitter, Microsoft, Atlassian, PayPal, eBay and Netflix. There are plenty more that have reported, and there are still more to come, but these are the periods that generally have the most impact on the best public barometer of a company’s success: its stock price.
Sometimes the stock swings are small, and sometimes they are big, but here’s a good example of how each of these reports and these days are among the defining factors of a company’s stock price — Twitter:
Shares of Twitter are up another 5 percent or so today, and after they reported their earnings yesterday they saw a quick 13 percent spike. Twitter at the time basically said they might make money in the near future, and Wall Street loves profitability. But if you look at the dates where you see the wildest swings in that stock price in the past year, you’ll see they line up with those dates: February 10, April 26, July 27 and, most recently, October 26 this year.
The stock price is critical for a number of reasons. It helps define where a company is in its life cycle and how valuable it might be. Companies also give you stock as part of compensation packages, so it needs to keep it up in order to keep its employees happy and attract talent. And having a higher stock price helps defend the company against activist investors that want to agitate change — something to which no company, not even Apple, is immune.
Whenever a company reports its financial guts, it gives the public — and Wall Street — an opportunity to tune its expectations and see whether the company is headed in a positive or negative direction. You might see an extended run-up or decline following the earnings, usually as reports come in from the various analysts that have read into the numbers and advise where they think things are headed.
Twitter, in particular, is a volatile company and is sensitive to earnings reports, but it isn’t completely alone in those swings. You’ll find that’s the case with recent IPOs like Snap, too:
Again, the dates do line up with some of the jumps and adjustments: August 10 and May 10. Snap, as a recent IPO, is again a very volatile stock as Wall Street looks to tune what it expects out of a new breed of advertising. So, as a result, its stock price can be all over the place.
As these reports come out, we get a sense of where the public companies are going. But it also gives us a sense of how sectors are performing and help gauge whether we think areas are opportunities for startups and how much overhead companies that are still private might have thanks to the various comparisons they can draw with some public companies.
You can check out our full earnings coverage here for the third quarter.