Ask Professor Milligan: Earning Season

Key Takeaways

• Earnings = total revenue minus expenses (net income); Wall Street uses earnings growth to value stocks and determine price targets for investment decisions
• Earnings season occurs 4 times per year when all companies release quarterly (10-Q) and annual (10-K) reports roughly simultaneously, typically at the end of each quarter
• Stocks rise when earnings beat expectations because analysts raise price targets, and sell off when companies miss because valuations get lowered—PayPal stock dropped 25% after missing earnings
• Some traders take positions before earnings are announced betting on upside/downside surprises, which is risky but can yield huge gains if correct
• Stock prices often move before official earnings announcements as traders and investors react to leaked data and expected results, not just the official release date