DOCSLIB.ORG

Start of an Earnings Surprise Cycle

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
Start of an Earnings Surprise Cycle Kakao (035720 KS ) Start of an earnings surprise cycle Internet Earnings momentum comes a quarter earlier than expected Company Report For 1Q19, Kakao announced revenue of W706.3bn (+27.2% YoY) and operating profit of May 10, 2019 W27.7bn (+166.5% YoY), topping our expectations (W671bn and W18bn, respectively) and the consensus (W662bn and W21.3bn, respectively). The earnings beat was attributable to stronger-than-projected growth in Talk Biz (KakaoTalk-related revenue), New Biz (Kakao Pay and Kakao Mobility), and paid content (Maintain) Buy (Kakao Page and Japan-based Piccoma). In addition to earnings, the company highlighted a number of positive business Target Price (12M, W) 170,000 indicators, including Kakao Pay’s strong transaction volume (W10tr in 1Q19, versus W20tr in 2018), Kakao Page’s record-high transaction volume (W63bn), and a 177% YoY Share Price (05/09/19, W) 126,500 surge in Piccoma’s revenue. We believe such indicators paint a bullish picture for future earnings. Expected Return 34% Earnings expectations reset higher On its earnings call, management expressed strong confidence in KakaoTalk chat tab OP (19F, Wbn) 195 ads (product name “Bizboard”), which began trial services on May 2 nd . For 2019, Consensus OP (19F, Wbn) 144 management guided a 20% increase in overall ad s ales and more than 50% increase in EPS Growth (19F, %) 127.8 Talk Biz ad sales. Market EPS Growth (19F, %) -18.5 Despite unfavorable seasonality, Talk Biz revenue grew 43% YoY in 1Q19, suggesting P/E (19F, x) 90.6 increased ad inventory (number of advertiser accounts) on KakaoTalk’s “#” tab. Market P/E (19F, x) 11.7 Advertiser response to KakaoTalk ads has continued to be positive overall. KOSPI 2,102.01 Following the 1Q19 earnings report, we are revising our 2019-20 revenue forecasts Market Cap (Wbn) 10,550 upward by 1.6% and 1.9%, respectively, and our 2019-20 operating profit forecasts by Shares Outstanding (mn) 83 33.4% and 7.1%, respectively. Any positive signs in Bizboard ad sales after May-June Free Float (%) 62.6 could prompt additional upward revisions to our earnings estimates. Foreign Ownership (%) 25.5 Beta (12M) 0.76 Maintain Buy and TP of W170,000 52-Week Low 87,600 We expect revenue from new businesses to begin outpacing spending in 2019, leading 52-Week High 128,500 to margin improvements. We bel ieve such earnings momentum has become even (%) 1M 6M 12M more visible with the latest earnings announcement. Absolute 25.9 25.9 11.9 The sharp increase in Kakao Pay’s transaction volume and financial product sales and Relative 32.6 24.9 30.2 Kakao Mobility’s strong revenue growth (driven by chauffeur service commi ssions) shown in the 1Q19 results also bode well for the company’s long-term growth outlook. 120 Kakao KOSPI 110 We reaffirm our Buy call and target price of W170,000 on Kakao. Our target price is 100 based on our 2020 revenue forecasts of each business division and the 2020F av erage 90 P/S ratio of domestic and foreign peers. 80 70 60 4.18 8.18 12.18 4.19 Mirae Asset Daewoo Co., Ltd. [ Internet ] FY (12) 12/16 12/17 12/18 12/19F 12/20F 12/21F Revenue (Wbn) 1,464 1,972 2,417 3,018 3,658 4,328 Chang -kwean Kim +822 -3774 -1614 OP (Wbn) 116 165 73 195 421 555 [email protected] OP margin (%) 7.9 8.4 3.0 6.5 11.5 12.8 NP (Wbn) 58 109 48 116 303 392 EPS (W) 874 1,602 613 1,397 3,637 4,703 ROE (%) 1.9 2.9 1.0 2.2 5.6 6.8 P/E (x) 88.1 85.5 168.0 90.6 34.8 26.9 P/B (x) 1.5 2.3 1.7 2.0 1.9 1.8 Dividend yield (%) 0.2 0.1 0.1 0.1 0.1 0.1 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, Mirae Asset Daewoo Research estimates May 10, 2019 Kakao Table 1. Quarterly and annual earnings (Wbn, % ) 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19F 3Q19F 4Q19F 2018 2019F 2020F Revenue 555 589 599 673 706 736 746 830 2,417 3,018 3,658 Platform 232 251 253 303 313 331 327 345 1,039 1,316 1,725 Talk Biz 89 98 107 128 127 136 141 145 421 549 841 Portal Biz 122 128 116 130 126 133 120 131 495 510 513 New Biz 22 25 30 45 60 62 65 69 123 257 370 Content 323 338 346 370 393 405 419 485 1,378 1,702 1,933 Game 106 112 99 100 94 97 96 150 417 437 456 Music 126 130 136 140 137 143 149 155 533 584 611 Paid content 44 51 60 63 75 83 92 97 218 345 480 IP Business and others 48 45 50 67 87 82 82 83 209 335 385 Operating profit 10 28 31 4 28 45 46 59 73 195 421 OP margin 1.9 4.7 5.1 0.6 3.9 6.1 6.1 7.1 3.0 6.5 11.5 Net profit 15 25 7 -29 18 27 32 38 16 115 297 Net margin 2.6 4.3 1.2 -4.3 2.5 3.7 4.3 4.6 0.7 3.8 8.1 YoY growth Revenue 25.2 25.7 16.3 23.6 27.2 25.0 24.4 23.2 22.5 24.9 21.2 Platform 29.5 22.9 21.1 30.5 34.8 31.8 29.3 13.8 26.0 26.6 31.1 Talk Biz 78.5 73.7 51.8 56.4 43.3 39.3 32.0 13.3 63.2 30.4 53.2 Portal Biz 3.9 -2.1 -6.2 -1.2 3.9 3.7 4.1 0.6 -1.5 3.0 0.6 New Biz 73.9 49.0 100.7 137.6 171.6 147.0 115.6 53.1 92.7 109.0 44.2 Content 22.2 27.9 13.0 18.5 21.7 19.9 20.9 30.9 20.0 23.5 13.6 Game 31.5 41.9 5.8 12.5 -10.9 -12.9 -3.8 49.7 21.9 4.8 4.3 Music 14.5 11.4 11.4 8.6 8.7 9.7 9.7 10.5 11.3 9.7 4.6 Paid content 77.4 75.2 69.0 69.1 70.6 62.5 51.5 52.5 72.1 58.2 39.1 IP Business and others -3.3 13.8 -7.9 17.2 83.7 83.1 63.2 25.0 4.7 60.0 15.0 Operating profit -72.9 -38.1 -35.2 -87.6 166.5 62.0 48.8 1263.3 -55.8 167.2 116.1 OP margin -73.1 103.8 -81.5 TTR 19.9 6.5 337.1 TTB -87.3 624.8 158.3 Source: Company data, Mirae Asset Daewoo Research estimates Table 2. Earnings forecast revisions (Wbn, %) Previous Revised %chg. Notes 2019F 2020F 2019F 2020F 2019F 2020F Revenue 2,971 3,591 3,018 3,658 1.6 1.9 Operating profit 146 393 195 421 33.4 7.1 Reflects variables Net profit 113 289 115 297 1.9 2.9 confirmed in 1Q19 results OP margin 4.9 10.9 6.5 11.5 - - Net margin 3.8 8.0 3.8 8.1 - - Source: Company data, Mirae Asset Daewoo Research estimates Mirae Asset Daewoo Research 2 May 10, 2019 Kakao Kakao (035720 KS/Buy/TP: W170,000) Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) (Wbn) 12/18 12/19F 12/20F 12/21F (Wbn) 12/18 12/19F 12/20F 12/21F Revenue 2,417 3,018 3,658 4,328 Current Assets 2,859 3,204 3,940 4,763 Cost of Sales 0 0 0 0 Cash and Cash Equivalents 1,247 1,197 1,514 1,897 Gross Profit 2,417 3,018 3,658 4,328 AR & Other Receivables 194 242 293 347 SG&A Expenses 2,344 2,823 3,237 3,773 Inventories 36 45 54 64 Operating Profit (Adj) 73 195 421 555 Other Current Assets 1,382 1,720 2,079 2,455 Operating Profit 73 195 421 555 Non-Current Assets 5,101 5,168 5,163 5,180 Non-Operating Profit 58 0 38 67 Investments in Associates 305 381 462 547 Net Financial Income 32 43 53 66 Property, Plant and Equipment 315 340 282 235 Net Gain from Inv in Associates 7 0 0 0 Intangible Assets 3,865 3,804 3,748 3,697 Pretax Profit 131 195 459 622 Total Assets 7,960 8,371 9,103 9,944 Income Tax 115 80 162 237 Current Liabilities 2,039 2,285 2,664 3,061 Profit from Continuing Operations 16 114 297 384 AP & Other Payables 461 575 697 825 Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 623 517 521 526 Net Profit 16 114 297 384 Other Current Liabilities 955 1,193 1,446 1,710 Controlling Interests 48 116 303 392 Non-Current Liabilities 293 355 421 489 Non-Controlling Interests -32 -2 -6 -8 Long-Term Financial Liabilities 45 45 45 45 Total Comprehensive Profit 24 114 297 384 Other Non-Current Liabilities 248 310 376 444 Controlling Interests 59 131 302 390 Total Liabilities 2,332 2,640 3,084 3,550 Non-Controlling Interests -35 -17 -4 -6 Controlling Interests 5,137 5,243 5,537 5,919 EBITDA 208 331 536 652 Capital Stock 42 42 42 42 FCF (Free Cash Flow) 394 451 733 818 Capital Surplus 4,648 4,648 4,648 4,648 EBITDA Margin (%) 8.6 11.0 14.7 15.1 Retained Earnings 453 560 853 1,235 Operating Profit Margin (%) 3.0 6.5 11.5 12.8 Non-Controlling Interests 490 488 482 474 Net Profit Margin (%) 2.0 3.8 8.3 9.1 Stockholders' Equity 5,627 5,731 6,019 6,393 Cash Flows (Summarized) Forecasts/Valuations (Summarized) (Wbn) 12/18 12/19F 12/20F 12/21F 12/18 12/19F 12/20F 12/21F Cash Flows from Op Activities 491 551 733 818 P/E (x) 168.0 90.6 34.8 26.9 Net Profit 16 114 297 384 P/CF (x) 49.1 36.8 20.3 16.2 Non-Cash Income and Expense 148 172 223 268 P/B (x) 1.7 2.0 1.9 1.8 Depreciation 68 75 59 46 EV/EBITDA (x) 35.3 27.1 15.6 11.7 Amortization 67 61 56 51 EPS (W) 613 1,397 3,637 4,703 Others 13 36 108 171 CFPS (W) 2,099 3,437 6,241 7,822 Chg in Working Capital 329 301 321 336 BPS (W) 61,614 62,880 66,397 70,979 Chg in AR & Other Receivables -1 -48 -51 -54 DPS (W) 127 127 127 127 Chg in Inventories -9 -9 -9 -10 Payout ratio (%) 63.3 8.8 3.4 2.6 Chg in AP & Other Payables 154 7 8 8 Dividend Yield (%) 0.1 0.1 0.1 0.1 Income Tax Paid -141 -80 -162 -237 Revenue Growth (%) 22.6 24.9 21.2 18.3 Cash Flows from Inv Activities -1,261 -409 -329 -345 EBITDA Growth (%) -29.5 59.1 61.9 21.6 Chg in PP&E -85 -100 0 0 Operating Profit Growth (%) -55.8 167.1 115.9 31.8 Chg in Intangible Assets -45 0 0 0 EPS Growth (%) -61.7 127.9 160.3 29.3 Chg in Financial Assets -449 -309 -329 -345 Accounts Receivable Turnover (x) 13.0 13.9 13.7 13.5 Others -682 0 0 0 Inventory Turnover (x) 84.2 74.9 73.9 73.1 Cash Flows from Fin Activities 891 -116 -6 -6 Accounts Payable Turnover (x) 0.0 0.0 0.0 0.0 Chg in Financial Liabilities -129 -106 4 4 ROA (%) 0.2 1.4 3.4 4.0 Chg in Equity 1,052 0 0 0 ROE (%) 1.0 2.2 5.6 6.8 Dividends Paid -12 -10 -10 -10 ROIC (%) 0.3 4.9 11.3 16.0 Others -20 0 0 0 Liability to Equity Ratio (%) 41.4 46.1 51.2 55.5 Increase (Decrease) in Cash 130 -50 317 383 Current Ratio (%) 140.2 140.2 147.9 155.6 Beginning Balance 1,117 1,247 1,197 1,514 Net Debt
Load more

Recommended publications
  • Earningsinsight 021221.Pdf
    John Butters, Senior Earnings Analyst Media Questions/Requests [email protected] [email protected] February 12, 2021 Key Metrics Earnings Scorecard: For Q4 2020 (with 74% of the companies in the S&P 500 reporting actual results), 80% of S&P 500 companies have reported a positive EPS surprise and 78% have reported a positive revenue surprise. If 80% is the final percentage, it will mark the third-highest percentage of S&P 500 companies reporting a positive EPS surprise since FactSet began tracking this metric in 2008. Earnings Growth: For Q4 2020, the blended earnings growth rate for the S&P 500 is 2.9%. If 2.9% is the actual growth rate for the quarter, it will mark the first quarter in which the index has reported a year-over-year earnings growth since Q4 2019. Earnings Revisions: On December 31, the estimated earnings decline for Q4 2020 was -9.3%. Nine sectors have higher earnings growth rates or smaller earnings declines today (compared to December 31) due to positive EPS surprises. Earnings Guidance: For Q1 2021, 26 S&P 500 companies have issued negative EPS guidance and 46 S&P 500 companies have issued positive EPS guidance. Valuation: The forward 12-month P/E ratio for the S&P 500 is 22.2. This P/E ratio is above the 5-year average (17.7) and above the 10-year average (15.8). To receive this report via e-mail or view other articles with FactSet content, please go to: https://insight.factset.com/ All data published in this report is available on FactSet.
    [Show full text]
  • VOLUNTARY DISCLOSURES and EARNINGS SURPRISES: the CASE of HIGH-TECH FIRMS in PERIODS of BAD ECONOMIC NEWS John Shon, Fordham University
    ACCOUNTING & TAXATION ♦ Volume 1♦ Number 1♦ 2009 VOLUNTARY DISCLOSURES AND EARNINGS SURPRISES: THE CASE OF HIGH-TECH FIRMS IN PERIODS OF BAD ECONOMIC NEWS John Shon, Fordham University ABSTRACT In this study, I examine the voluntary disclosure behavior of high-tech firms experiencing bad economic news. I create a sample of 100 randomly-selected firm-quarters with negative returns—but not necessarily negative earnings surprises. I find that: (i) the unconditional relation between earnings surprises and voluntary disclosures is non-existent in this setting where negative stock returns are controlled for, but (ii) firms with negative earnings surprises make forward-looking statements with more negative information content—but only when conditioned on firm size or growth opportunities. Sample selection procedures can therefore affect inferences drawn from voluntary disclosure behavior documented in extant studies. Conditional analysis reveals how the earnings-disclosure relation cross- sectionally varies with firms’ economic characteristics. JEL: M40, D82 KEYWORDS: Voluntary disclosures, earnings surprise, bad economic news, litigation risk INTRODUCTION n this study, I examine the voluntary disclosure behavior of firms with bad economic news. The goal of the study is two-fold. First, I examine the relation between voluntary disclosures and earnings Isurprise —but do so only after explicitly controlling for negative stock returns. Controlling for negative returns is particularly important for studies that examine bad news disclosures because they are a necessary condition of Rule 10b-5 litigation. Other studies fail to control for this, and may suffer from a correlated omitted variables problem; such studies may therefore draw incorrect inferences about the earnings-disclosure relation, or find results that are inconsistent with litigation predictions.
    [Show full text]
  • Earnings Quality White Paper
    Corporate Earnings: It’s not just a question of quantity September 30, 2007 Introduction outline the findings of our own research and illustrate They say beauty is only skin-deep. Investors would be how we have incorporated earnings quality analysis into wise to remember this aphorism when choosing stocks our investment process. since a company’s stated earnings, though eagerly watched by the market, are only ink-deep. To truly un- Background derstand a firm’s financial situation, it is important to The success Smith Group has achieved over the years consider the quality of a firm’s earnings, not just the is attributable to our ability to control portfolio risk and quantity. invest in companies whose earnings grow faster than the market expects. Because reported earnings are so The Basics... important to our process, and because managements have so many accounting tools available to them to Understanding the quality of earnings is important to forecasting the quantity and credibility of fu- manipulate earnings, it is important that we assess the ture earnings. credibility of earnings for every company we invest in our clients’ portfolios. Level of accruals, operating margins, asset turnover and expense exclusions are significant indicators of the degree of earnings quality. The foundations of our earnings quality model rest on a large array of research generated both externally and Earnings quality measures differ by industry, making internally. We have studied numerous academic papers customization of rankings models necessary. from some of the leading minds in the field. The out- Companies with high earnings quality have a come of this review was a confirmation of the primary higher likelihood of reporting positive earnings measures that we already use, but with some enhance- surprises in the future.
    [Show full text]
  • Revenues and Earnings As Key Value Drivers in Various Contexts
    Revenues and Earnings as Key Value Drivers in Various Contexts: Implications for Financial Management and Statement Analysis Itay Kama Graduate School of Business Administration Tel Aviv University Tel Aviv 69978, Israel [email protected] First Draft: December 2003 Current Draft: November 2004 I would like to thank my advisor, Eli Amir, for his comments and dedicated guidance. I also wish to thank Roy Dilmanian, Ronen Mansury, Dayna Kesten, participants at the 2004 Annual Congress of the European Accounting Association, and seminar participants at Tel Aviv University. Finally, I would like to thank the David Orgler Banking and Finance Research Fund and the Harry Simons Scholarship Fund for providing financial support. Revenues and Earnings as Key Value Drivers in Various Contexts: Implications for Financial Management and Statement Analysis Abstract This study examines the relative information content of revenues and earnings in various contexts. Although it is clear that investors' perception of the information content of accounting variables is colored by the contextual framework, the information content literature has not focused on the contextual analysis of information in revenues. I find that in contexts in which current earnings are a weak indicator of future earnings the role of earnings (revenues) is relatively less (more) important: High R&D firms, loss-reporting firms, and industries with oligopolistic competition. Due to relatively high earnings management, earnings have lower information content in the fourth quarter than in the first three fiscal quarters. Overall, these results have important implications for financial management and for financial statement users, in understanding the role earnings and revenues play in different contexts, such as R&D intensity, firm specification, and industry characteristics.
    [Show full text]
  • Free Cash Flow Disclosure in Earnings Announcements*
    Free Cash Flow Disclosure in Earnings Announcements* Katharine Adame [email protected] Jennifer Koski [email protected] Sarah McVay [email protected] University of Washington October 1, 2018 Abstract More companies are disclosing free cash flow in their earnings announcements. Companies choose a range of definitions for disclosed free cash flow, none of which correspond to the theoretical definition. The most common definition (in 38% of free cash flow disclosures) is operating cash flow minus capital expenditures. The decision to disclose free cash flow is associated with both information and opportunistic motives. The market reacts significantly and incrementally to free cash flow disclosure. Evidence suggests there is value-relevant information in free cash flow itself, in the decision to disclose free cash flow, and in the choice of definition. Keywords: Free Cash Flow, Valuation, Disclosure, Earnings Announcements JEL Classifications: G14, G31, G32 *We would like to thank Brandon Adame for his assistance with the Python programming and Rui Han for valuable research assistance. We also thank Ed deHaan, Ran Duchin, Chris Hrdlicka, Andrew Imdieke, Jeffrey Pontiff, Ed Rice, Lorien Stice and seminar participants at the University of North Carolina, the University of Notre Dame, and the University of Washington finance brown bag seminar for helpful comments. 1. Introduction In recent years, more companies have started voluntarily disclosing “free cash flow” to supplement earnings figures in their earnings announcements. Less than 10% of the Standard and Poor’s 1500 firms in our sample disclosed free cash flow in their annual earnings announcements in 2004; by 2016, this fraction more than doubled to over 20%.
    [Show full text]
  • Smoothness, Earnings Surprise and Stock Price Informativeness
    International Journal of Academic Research in Accounting, Finance and Management Sciences Vol. 4, No.2, April 2014, pp. 385–394 E-ISSN: 2225-8329, P-ISSN: 2308-0337 © 2014 HRMARS www.hrmars.com Smoothness, Earnings Surprise and Stock Price Informativeness. Evidence from Indian Stock Market Gregory D. LYIMO Birla Institute of Management Technology, Plot No. 5, Knowledge Park, Greater Noida (NCR) Uttar Pradesh - 201 306 The Institute of Finance Management (IFM) Shaaban Robert Street, P.O.BOX 3918, Dar es salaam, Tanzania, E-mail: [email protected] Abstract We examine the relationship between stock price synchronicity and earnings quality. We specifically used earning surprise and smoothness as proxy of earnings quality. Data were collected from companies listed in Bombay stock exchange in BSE 500. Our sample period ranges from 2006 to 2012. We employed panel data regression model using pooled OLS with standard error robust. We find that there is significant negative relationship between earnings surprise and stock price synchronicity. This finding is indicates that earnings surprise improves stock price informativeness. Finally, we find that there is no significance relationship between smoothness and stock price synchronicity. Therefore, smoothness of earnings does not influence stock price informativeness. The present study adds to new insight of the relationship between stock price informativeness and earnings quality proxies from emerging market particular India. Key words Earnings quality, earnings surprise, stock price synchronicity, stock price informativeness DOI: 10.6007/IJARAFMS/v4-i2/936 URL: http://dx.doi.org/10.6007/IJARAFMS/v4-i2/936 1. Introduction During recent years, the importance of improving informativeness of stock price so as to improve resources allocation have emerged issues of concern to researchers and other market participants (Durnev et al., 2004; Piotroski and Roulstone 2004; Jing 2007; and Johnston 2009).
    [Show full text]
  • Assessing the Effects of Earnings Surprise on Returns and Volatility with High Frequency Data
    Assessing the Effects of Earnings Surprise on Returns and Volatility with High Frequency Data Sam Lim Professor George Tauchen, Faculty Advisor Fall 2009 Duke University is a community dedicated to scholarship, leadership, and service and to the principles of honesty, fairness, respect, and accountability. Citizens of this community commit to reflect upon and uphold these principles in all academic and non-academic endeavors, and to protect and promote a culture of integrity. To uphold the Duke Community Standard: • I will not lie, cheat, or steal in my academic endeavors; • I will conduct myself honorably in all my endeavors; and • I will act if the Standard is compromised. 2 I. Introduction A company’s earnings play a key role in the valuation of its stock, and thus earnings estimates, as well as earnings announcements, are always carefully scrutinized—sometimes to the point where they may matter more than actual performance. In the third quarter of 2006, Alcoa reported it was experiencing the best year in its entire history, generating more profit in the first nine months than any previous year in over a century. Despite its exceptional performance, Alcoa’s shares fell six percent in the extended trading period after the results were posted. Its fault was missing Wall Street’s estimates (Mandaro 2006). Although earnings announcements are reported only four times a year, in conjunction with analyst estimates, their potentially significant effects on stock prices suggest that analyzing price behavior on earnings announcement dates can yield important insights on how the market uses the information from these numbers. According to the Gordon Growth Model, the basic fundamental method of valuing stocks, a stock’s current price P depends on the expected earnings De, the growth rate of the dividend g, and the required rate of return for the investor k such that ̾ ͊ = ͟ − ͛ The efficient-markets hypothesis asserts that investors constantly update the stock price as they receive new information.
    [Show full text]
  • FORECASTING VOLUME and PRICE IMPACT of EARNINGS SURPRISES USING GOOGLE INSIGHTS Jedediah Baker, Alliant International University
    The International Journal of Business and Finance Research Vol. 10, No. 4, 2016, pp. 53-62 ISSN: 1931-0269 (print) www.theIBFR.com ISSN: 2157-0698 (online) FORECASTING VOLUME AND PRICE IMPACT OF EARNINGS SURPRISES USING GOOGLE INSIGHTS Jedediah Baker, Alliant International University ABSTRACT This paper examines the predictability of price and volume movements using Google Insights on equities exhibiting earnings surprise and the association with pre-announcement information searching. The motivation for this paper is to answer two primary research questions. First of all, using more recent stocks earnings surprise, is Google search data a good indicator of investor interest prior to the earnings announcement? Second does the Google data add to the predictability of post earnings volume and pricing direction? Data on earnings surprise were taken from Yahoo Finance and Google search volume data were taken from the Google trends website. While the results found in the analyses above are not highly convincing regarding Google trends data and price movement from earnings surprise, the results on the volume models yielded promising (i.e. significant) results. Moreover, Mean Absolute Error was reduced by approximately 8% when incorporating the Google trends data on volume predictions. JEL: G17 KEYWORDS: Predictability, Volume Movements, Earnings Surprise, Google INTRODUCTION inancial research suggests that the impact of earnings surprise on firms quoted price is a function of investor’s expectation of the surprise, as well as their reaction to the surprise itself (c.f. Atiase and F Bamber, 1994 and Barberis, Shleifer and Vishny, 1998). This implies that pre-earnings expectations will absorb some of the price movements associated with the actual earnings surprise.
    [Show full text]
  • Weekly Market Guide Since Breaking out to New Highs in November, the S&P 500 Has Continued to Glide Higher Through the Seasonally Strong Period of the Year
    PORTFOLIO STRATEGY | PUBLISHED BY RAYMOND JAMES & ASSOCIATES Michael Gibbs, Director of Equity Portfolio & Technical Strategy | (901) 579-4346 | [email protected] JANUARY 14, 2021 | 11:51 AM EST Joey Madere, CFA | (901) 529-5331 | [email protected] Richard Sewell, CFA | (901) 524-4194 | [email protected] Mitch Clayton, CMT, Senior Technical Analyst | (901) 579-4812 | [email protected] Weekly Market Guide Since breaking out to new highs in November, the S&P 500 has continued to glide higher through the seasonally strong period of the year. Enormous strength from the most risk-on areas during this time frame was triggered by positive vaccine news in early November, allowing for optimism toward an economic reopening in 2021. Technical momentum toward the reflation trade remains strong with added support in recent days from positive vaccine news (Johnson&Johnson early vaccine study) and reports that President-elect Biden is set to unveil a ~$2T fiscal stimulus package tonight (on top of the $900B in relief passed a few weeks ago). The unprecedented amount of both fiscal and monetary stimulus remains supportive of equity markets in our view. Eventually, the market will need to digest this strength but, for now, the trend remains your friend. The S&P 500, along with some of the more cyclical areas (i.e. small caps, banks, equal weight consumer discretionary), have been able to trade above their 20-day moving averages since early November. We will be monitoring price action around this level for potential cracks in the short term trend that may lead to an eventual digestion period.
    [Show full text]
  • Why Firms Voluntarily Disclose Bad News Author(S): Douglas J
    Accounting Research Center, Booth School of Business, University of Chicago Why Firms Voluntarily Disclose Bad News Author(s): Douglas J. Skinner Reviewed work(s): Source: Journal of Accounting Research, Vol. 32, No. 1 (Spring, 1994), pp. 38-60 Published by: Blackwell Publishing on behalf of Accounting Research Center, Booth School of Business, University of Chicago Stable URL: http://www.jstor.org/stable/2491386 . Accessed: 02/07/2012 02:10 Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at . http://www.jstor.org/page/info/about/policies/terms.jsp . JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact [email protected]. Blackwell Publishing and Accounting Research Center, Booth School of Business, University of Chicago are collaborating with JSTOR to digitize, preserve and extend access to Journal of Accounting Research. http://www.jstor.org Journal of Accounting Research Vol. 32 No. 1 Spring 1994 Printed in U.S.A. Why Firms Voluntarily Disclose Bad News DOUGLAS J. SKINNER* 1. Introduction This paper provides evidence on corporate voluntary disclosure practices through an examination of the earnings-related disclosures made by a random sample of 93 NASDAQ firms during 1981-90.' I find that, consistent with prior studies, earnings-related voluntary disclo- sures occur infrequently (on average, one disclosure for every ten quarterly earnings announcements); good news disclosures tend to be point or range estimates of annual earnings-per-share (EPS), while bad news disclosures tend to be qualitative statements about the current quarter's earnings; the (unconditional) stock price response to bad *University of Michigan.
    [Show full text]
  • The Unappreciated Value of Marketing Metrics
    Marketing Science Institute Special Report 09-204 The Unappreciated Value of Marketing: The Moderating Role of Changes in Marketing and R&D Spending on Valuation of Earnings Reports Isaac Dinner, Natalie Mizik, and Donald Lehmann Copyright 2009 Isaac Dinner, Natalie Mizik, and Donald Lehmann MSI special reports are in draft form and are distributed online only for the benefit of MSI corporate and academic members. Reports are not to be reproduced or published, in any form or by any means, electronic or mechanical, without written permission. The Unappreciated Value of Marketing: The Moderating Role of Changes in Marketing and R&D Spending on Valuation of Earnings Reports Isaac Dinner Natalie Mizik Don Lehmann March 25, 2009 Corresponding author: Isaac Dinner, Columbia Business School, 3022 Broadway, Uris Hall, New York, NY 10027, [email protected] 1 The Unappreciated Value of Marketing: The Moderating Role of Changes in Marketing and R&D Spending on Valuation of Earnings Reports Abstract Because current earnings predict future financial performance, the stock market reacts strongly to earnings announcements. How rapidly and in what manner information about marketing actions and strategies is accounted for in the stock valuation is less clear. We examine the financial market’s ability to fully and timely value marketing-related information released along with quarterly earnings announcements. We find evidence consistent with the market initially under-appreciating marketing and R&D effort. Specifically, we find differences in the immediate market response to earnings announcements for firms expanding versus reducing their marketing and R&D effort. However, we also observe a significantly greater positive stock price drift (i.e., systematic stock price adjustment) in the months following an earnings announcement for firms increasing marketing and/or R&D expenditures.
    [Show full text]
  • Predictors of the Degree of Positive Earnings Surprises
    Open Journal of Accounting, 2016, 5, 25-34 Published Online July 2016 in SciRes. http://www.scirp.org/journal/ojacct http://dx.doi.org/10.4236/ojacct.2016.53004 Predictors of the Degree of Positive Earnings Surprises Rebecca Abraham, Charles Harrington Huizenga College of Business, Nova Southeastern University, Fort Lauderdale, FL, USA Received 24 April 2016; accepted 27 June 2016; published 30 June 2016 Copyright © 2016 by authors and Scientific Research Publishing Inc. This work is licensed under the Creative Commons Attribution International License (CC BY). http://creativecommons.org/licenses/by/4.0/ Abstract This study identifies the predictors of positive earnings surprises at varying levels of earnings surprises under strong and weak business conditions (2014 and 2010, respectively). It measures the impact on surprises of a unique and diverse set of predictors such as analyst coverage and in- dustry type which are security characteristics and sales and cash flow that emanate from financial statements. The study employs technology stocks that were found on the NASDAQ as such stocks have reported high positive earnings surprises from 2013-2015 [1]. The entire population of posi- tive earnings surprises for 8316 NASDAQ stocks in 2010 and 2014 was used. Event studies were used to measure abnormal return and abnormal volume at earnings announcement, while mul- tiple regressions tested the influence of the predictors of positive earnings surprises including number of analysts, sales, cash flow and industry type. Number of analysts significantly predicted positive earnings surprises of <20%, 21% - 30%, 31% - 100% and > 100% regardless of business condition, while sales and industry type showed similar results for weak business conditions.
    [Show full text]