Whisper Numbers: Unofficial Estimates

You've probably seen a company beat earnings estimates only to watch the stock fall. One explanation: the whisper number. This unofficial estimate represents what sophisticated traders actually expect, often differing significantly from the published consensus. Understanding whisper numbers can help explain puzzling stock reactions and improve your earnings trading.

What is a Whisper Number?

A whisper number is an unofficial earnings estimate that circulates among institutional traders and informed market participants. It represents what the market really expects, as opposed to the official consensus estimate published by analyst aggregators.

The term comes from the way these numbers spread - literally whispered between traders on Wall Street trading floors before earnings announcements. Today, whisper numbers are more widely available, though they still differ from official consensus figures.

Why Whisper Numbers Differ from Consensus

Several factors cause whisper numbers to differ from official consensus estimates:

1. Analyst Conservatism

Sell-side analysts often publish conservative estimates to avoid being wrong on the high side. Many companies have a pattern of consistently beating estimates, and analysts know this but still publish lower numbers.

2. Timing of Estimate Updates

Consensus estimates may be stale if analysts have not updated their models recently. The whisper number incorporates the most recent information, including data released after the last analyst update.

3. Insider Information Flow

While illegal, some whisper numbers may incorporate leaked information that has not reached public analysts. This is one reason regulators scrutinize unusual trading before earnings.

4. Options Market Signals

Sophisticated traders analyze options activity to gauge market expectations. Heavy call buying or put selling can signal expectations above consensus.

How to Find Whisper Numbers

Whisper numbers are harder to find than consensus estimates, but several sources exist:

• WhisperNumber.com: A website dedicated to tracking whisper numbers for major stocks
• Trading communities: Forums and chat rooms where traders share expectations
• Options market analysis: Implied expectations from options pricing
• Social media sentiment: Twitter and StockTwits discussion can reveal trader expectations
• Proprietary research: Some hedge funds develop their own whisper estimates

Whisper Numbers and Stock Reactions

The relationship between actual results and whisper numbers helps explain stock reactions:

Beat Consensus and Whisper

When a company beats both the official estimate and the whisper number, expect a positive stock reaction. This is a genuine positive surprise that catches even sophisticated traders off guard.

Beat Consensus, Miss Whisper

This common scenario explains why stocks often fall on earnings beats. The official beat was already priced in based on the higher whisper expectations. The miss versus whisper triggers selling.

Miss Consensus, Beat Whisper

Rare but possible: if expectations were truly dire, a company might miss published estimates but actually exceed what the market feared. This can trigger a relief rally despite the official miss.

The Psychology Behind Whisper Numbers

Whisper numbers reveal market psychology and positioning:

High Whisper vs Consensus

When the whisper number exceeds consensus significantly, it indicates bullish positioning and optimism. The bar for a positive reaction is set high.

Low Whisper vs Consensus

When whisper numbers fall below consensus, it suggests skepticism and defensive positioning. This creates opportunity for positive surprises.

Converging Numbers

When whisper and consensus numbers are close, expect the stock reaction to align more closely with the official beat/miss result.

Trading Strategies Using Whisper Numbers

1. Identify Disconnects

Look for stocks where whisper numbers diverge significantly from consensus. Large gaps create opportunities when the actual results clarify which estimate was correct.

2. Assess Positioning

High whisper numbers suggest bullish positioning, making the stock vulnerable to disappointing results. Low whisper numbers suggest defensive positioning with upside surprise potential.

3. Calibrate Expectations

Use whisper numbers to set realistic expectations before earnings. If you expect a beat, make sure you are expecting a beat versus whisper, not just consensus.

Limitations of Whisper Numbers

While useful, whisper numbers have significant limitations:

• Imprecision: Whisper numbers are estimates of sentiment, not precise predictions
• Limited availability: Reliable whisper numbers exist mainly for large, actively traded stocks
• Self-fulfilling: Published whisper numbers can influence expectations, changing the number itself
• Gaming: Some may try to manipulate whisper numbers to move stocks
• Guidance matters too: Whisper numbers focus on current results but forward guidance also drives reactions

Summary

Whisper numbers represent the unofficial earnings expectations that sophisticated traders actually hold, often differing from published consensus estimates. Understanding the gap between whisper and consensus helps explain seemingly counterintuitive stock reactions to earnings. A company can beat consensus but still fall if it misses the whisper number. Use whisper numbers as one input in your earnings analysis, but remember they are imprecise indicators of market sentiment rather than exact predictions.

Learn more: Earnings Beat or Miss and Pre-Earnings Trading Strategies.