What earnings reports contain
Every quarter, public companies are required to report their financial results. The earnings per share (EPS) is the most-watched number — total net profit divided by shares outstanding. The revenue number shows total sales. Together, they determine whether the company is growing profitably.
Analysts at investment banks publish consensus estimates before each earnings release — a weighted average of what they think the company will report. The market's reaction to earnings is almost entirely about the surprise: how much did actual results beat or miss the consensus?
A company can report strong earnings and still fall if the market expected even better. A company can report weak earnings and rally if it beat a deeply pessimistic consensus. The phrase "sell the news" often describes situations where good results were so well anticipated that there's no one left to buy.
Beyond the official consensus estimate, there's often an informal "whisper number" — what the most informed market participants actually expect. Beating the official consensus but missing the whisper is often enough to cause a sell-off. Following options implied moves before earnings gives you a sense of where the real expectations bar sits.
Revenue, margins, and guidance
Revenue growth tells you whether the business is expanding. Earnings tell you whether it's doing so profitably. But the number the market cares most about after the initial beat/miss is often the guidance — what management says about the next quarter or year.
Margins (gross margin, operating margin, net margin) reveal whether a company is maintaining pricing power or being squeezed by costs. Margin expansion in a growing company is a powerful signal of compounding value creation. Margin compression even with revenue growth signals a deteriorating competitive position.
Forward guidance is often more market-moving than the historical quarter. A company can beat current estimates dramatically but crash 15% if it guides below consensus for the next quarter. The market is always pricing the future, not the past.
Trading around earnings
The implied move for a stock's earnings can be read from the options market before the announcement. If the 1-week at-the-money straddle implies a 7% move, that's what options traders are pricing as the expected magnitude of the reaction, in either direction.
Historical earnings reactions — how a stock has moved on its last 4-8 earnings reports — give context for whether the current implied move is expensive or cheap. A stock that historically moves 5% but has a 10% implied move suggests fear; one that typically moves 12% but only implies 7% suggests complacency.
Avoid holding earnings without a plan for both scenarios. Know the catalyst (what specific number or guidance line matters most for your thesis), know your stop if it goes against you, and size positions conservatively because even a correct fundamental view can lose to a short-term sentiment overreaction.