This puts the whisper number into perspective,
Pssst. Want to manipulate a whisper number?
04/23 11:28
By Jack Reerink
NEW YORK, April 23 (Reuters) - Matt Ruecker logged onto the
Web one day last week, and with a couple of clicks changed
closely watched profit expectations for a hot technology
company by 10 percent.
The new estimate for software company Citrix Systems Inc.
, known as the Citrix "whisper" number, hit the
Internet the next day, including the Web's most popular site
maintained by Yahoo! Inc. .
Whisper numbers, which usually are defined as unpublished
profit estimates circulating on Wall Street trading desks, are
closely watched because companies that fail to meet them often
see their share price fall.
The problem was that Ruecker, a 27-year-old individual
investor, fabricated the number. Ruecker is an auditor at a big
Cincinnati accounting firm and has no special insights into
Citrix' business. His dealings with the company are limited to
the purchase of a 100 shares of its stock.
"This is just pure manipulation through the Web," Ruecker
said. "It's scary."
The experiment by Ruecker, who contacted Reuters to draw
attention to the easy change in numbers, was repeated by two
Reuters reporters on several technology companies.
Manipulation quickly can turn into financial gain if
investors bet on a decline in the share price of a company that
misses a whisper they themselves fabricated. In this age of
rapid stock trading and investor nervousness about sky-high
equity prices, that can cost a company billions of dollars in
market value, and line manipulators' pockets.
A spokesman for the U.S. Securities and Exchange
Commission, the chief U.S. stock market regulator, was not
immediately available for comment.
Investors increasingly focus on whisper numbers because
most U.S. companies beat the "official" analysts consensus
estimates of market research firms like First Call/Thomson
Financial. Some 72 percent of big U.S. companies beat First
Call's consensus so far this quarter, up from an average of 56
percent in the last six years.
Part of the reason is that more companies are guiding
analysts' estimates down in the hope that an upside earnings
surprise will lift their stock prices, said Chuck Hill, First
Call's director of research.
As a result, investors are approaching forecasts from
brokerage analysts with skepticism. At the same time, whisper
numbers are gaining credibility after a joint study by the
University of Michigan and Purdue University, published in
1999, found whisper numbers available on the Internet more
accurate than analysts' estimates.
To fill demand from information-hungry online investors,
Web sites devoted to whisper numbers have sprung up in recent
years. These sites claim a variety of sources for their data,
including analysts, company insiders and individual investors,
and generally claim to forecast corporate profits more
accurately than First Call's consensus.
But the university study, conducted between 1995 and 1997,
did not gauge the accuracy of more recently set up Web sites.
And as Ruecker discovered, some of these sites are easy to
manipulate.
Ruecker spotted a table on Yahoo (http://www.Yahoo.com)
that carried a whisper number of a profit of 22 cents a share
for Citrix' first-quarter results, three pennies above the
First Call consensus. Skeptical, the auditor than went to the
Web site of the table's source, Whispernumber.com, and checked
out the Citrix whisper number.
"Right there it said: 'Enter your number,' so I clicked on
it. Then I registered, entered 18 cents, and all of a sudden it
changed to (a new whisper of) 20 cents," Ruecker said. "I said:
'Holy ss...sugar!'"
Citrix late last Wednesday reported first-quarter earnings
of 21 cents a share, ahead of First Call's 19 cents, and
matching Whispernumber.com's whisper number, which had moved up
to 21 cents since Tuesday. The company's stock price on
Thursday afternoon fell 12-3/8, or 19 percent, to 53, amid
investor concerns about an increase in customer payments owed
to the company, one analyst said.
Citrix spokespeople were not immediately available for
comment.
Two Reuters reporters on Wednesday logged onto
Whispernumber.com's Web site and entered their own estimates.
In less than two minutes, they changed the whisper number
on a small technology company from a loss of 8 cents a share
for the quarter to break-even. Reuters reporters then tried to
cancel the result of the experiment and alerted the Web site's
owners to the changes.
The potential impact of these fabrications went far beyond
Whispernumber.com's Web site when two major news wire services,
Reuters and Dow Jones, this month started to carry tables that
listed data from Whispernumber.com's Web site.
Reuters, a unit of London-based news and financial data
company Reuters Group Plc , is the biggest provider of
news on the Internet. News from Reuters and Dow Jones & Co.
Inc. , which is the publisher of the Wall Street Journal,
also reach a huge client base of investment professionals.
Both agencies dropped the estimates after brief trial
periods."We decided to terminate because the method by which
the information is collected is inconsistent with our standards
for content," Reuters spokeswoman Nancy Bobrowitz said.
"We stopped because we concluded the estimates they were
reporting were not sufficiently restricted to securities
professionals," said Dow Jones spokesman Richard Tofel.
Whispernumber.com's founders, Paul Hauck and John Scherr,
conceded investors can manipulate the Web site's data. But they
said the site still is a good predictor of stock movement, and
cited a 60-70 percent accuracy rate.
"There is some trust factor involved; we hope investors
come to our site and in good faith provide their analysis,"
Scherr said. "You can't be too naive though, this is after all
investment in stocks. That's why we're encouraging investors to
look at the number of whispers to get a better gauge of whether
this is a strong sentiment indicator."
Whispernumber.com, which started in 1998 and was bought by
Fort Lauderdale, Fla., Internet Financial Network Co. last
year, doesn't purport to have insider knowledge from analysts
or Wall Street professionals, Hauck said. It merely measures
sentiments from the millions of Americans who trade stocks
online, he added.
"We're saying there's a new force out there, a large
demographic of online, New Economy-type of investors," Hauck
said. "When their expectations are met, these investors are
happy and price move higher."
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