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The Oracle Of Omaha

0621_Earnings

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What's going on?

Stocks of delivery company FedEx and software sage Oracle fell by 2% and 7%, respectively, on Wednesday. Despite both companies beating investor expectations for the quarter, their outlooks seem pretty grim.

What does this mean?

FedEx grew its sales and profit for the quarter – online shopping boosted the number of packages it delivered, and it was able to charge higher delivery fees. However, investors worried about the impact of a trade war on its ability to grow in the future, selling its stock along with delivery nemesis UPS.


Similarly, Oracle exceeded investor forecasts thanks to continued growth in the cloud computing services part of its business. But its forecast for the next quarter was below analyst expectations – likely contributing to the stock’s fall.

Why should I care?

The bigger picture: Some investors would like companies to keep quiet.


Superstar investor Warren Buffett and the CEO of JPMorgan Chase have called for companies in the US to stop telling investors what to expect on a quarterly basis. They believe it results in too much focus on short-term objectives, possibly at the expense of long-term growth and business sustainability. In France and the UK, for example, companies give a full report to investors twice a year, plus two shorter updates. However, some investors worry this could lead to people relying on rumors and innuendo instead.



For markets: Stock markets can be a voting machine in the short term and weighing machine in the long term.


The price of a stock should ultimately reflect the value today of the future cash generated by the company. This fluctuates as investors have differing views on those numbers, and also because companies’ financial results and forecasts cause investors to reassess their own projections. However, fluctuations in supply and demand – or news that’s hot off the press – can cause stock prices to move quickly as investors “vote” yes or no to a stock rather than weighing up its long-term value.

Originally posted as part of the Finimize daily email.

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