← Stocks · lesson 12 of 12
By the end of this one you'll know what an earnings report is, what revenue and profit mean, and why a good report can still send a price down.
An earnings report is a public report card that every company on the stock market must publish every three months. It shows revenue, which is all the money that came in the door, and earnings, which is the profit, the money left after every bill got paid. Now here's the twist that confuses everybody: the grade alone isn't the story, the expectation is. Before each report, professional guessers called analysts publish what grade they think the company will get. When the straight A kid brings home a B there's drama at the dinner table even though a B is a fine grade, and when the C kid brings home that same B, there's ice cream. Stocks do exactly that: a company can report good solid profit and the price still drops because the guessers expected better, or report numbers that were just okay and rise because everyone braced for worse. Report card, expectations, reaction, that's earnings season.
Same lesson, told by a hundred dollar bill. Tap to walk it one step at a time.
In this example someone holds $100 worth of a company's shares, the little ownership pieces people buy, on the night it reports.
The company earns a real profit, but less than the analysts guessed, and the price opens 8% lower, so the $100 shows about $92 the next morning.
A different quarter it beats the guesses and rises 6%, so the same $100 shows $106.
Report nights move prices fast, in both directions, and nobody knows which way beforehand.
It's report card night, one kid earned ice cream and one got the long talk, and your phone lights up mid dishes. Your brother texts in all caps that his stock dropped 8 percent today even though the company made money, and he wants to know how that's even legal. The dish towel is still over your shoulder.
Pick your move. Then peek at the other roads if you're curious.
Earnings reports are a company's quarterly report card, and prices react to expectations as much as to the numbers themselves.