2018 Earnings Season Review

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2018 Earnings Season Review

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It is fair to say that the latest earnings season went very well. What I mean by earnings season for those confused, is one of four times a year that a lot of public companies report earnings.

Public companies are required by the Federal Trade Commission to disclose their earnings quarterly in their quarterly report. This means that four times a year companies are judged and “revalued” by Wall Street.

Each public company has third-party analyst, typically high profile Wall Street financial firms, that predict expected earnings per share (EPS) for the company. The analyst will also “upgrade” or “downgrade” a stock based on the analyst’s judgment to buy, hold, or sell the stock.

Wall Street is fixated on public companies meeting their quarterly earnings and will either reward or punish the firm based on meeting or not meeting their expected earnings. Many times the value of a company on an earnings day can fluctuate by hundreds of basis points.

Typically Wall Street likes to see steady growth in a company’s earnings, however, for younger fast-growing firms, sometimes extreme revenue growth will also satisfy Wall Street.

Amazon (AMZN) happens to be one of those growing companies and has focused little on earnings and more on “scaling” and expanding their business. Instead of bringing in a high EPS, AMZN has been reinvesting their liquid cash back into their existing businesses or new ventures.

Recently Amazon released its quarterly report in which it happened to greatly outperform what analysts were predicting. Analysts were predicting earnings of $1.85 per share and Amazon reported a $2.16 EPS.

This may not sound like a big deal, but it could be a sign of Amazon maturing as a company. It is still apparent though that Amazon is still in growth mode considering the fact they spent nearly $23B on Research and Development in 2017 according to Recode.

Personally, I find it pointless to trade a stock based on short-term growth. In my opinion, it shouldn’t matter what happens quarter to quarter, rather I consider the year to year growth. Even if analysts are expecting 40% year over year revenue growth, and the company only gets 33% year over year growth, I am still satisfied.

In this case, it’s not about the journey, it’s about the destination which is long-term earnings or sales growth.

DISCLAIMER: Cameron is not a certified financial advisor and all things stated should be considered solely as entertainment and NOT for financial transactions.

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