Top Line and Bottom Line Forecasts: A Comparison of Internet Firms During and after the Bubble

29 Pages Posted: 21 Jun 2001

See all articles by Mark Bagnoli

Mark Bagnoli

Purdue University

Sanjay Kallapur

Indian School of Business

Susan G. Watts

Purdue University

Date Written: June 2001

Abstract

Analysts' forecasts of revenue and how they compare to reported revenues is now a standard part of financial analysis surrounding earnings releases for internet firms. In this paper, we examine the characteristics and relative information content of revenue and earnings news for such firms during and after the internet bubble. First Call analysts tend to be pessimistic in their forecasts of both revenues and earnings for internet firms. However, after the crash, the quality of revenue forecasts improves: the bias declines and they become significantly more accurate. This improvement is predominantly driven by forecasts made for firms reporting losses. For these firms, we find that stock prices respond to revenue, but not earnings, surprises both during and after the bubble. In contrast, for firms reporting profits, stock prices respond to earnings surprises both during and after the bubble but to revenue surprises only during the bubble - and then only weakly. Thus, analysts appear to have improved revenue forecasts for those firms for which top line surprises are most relevant to the market

Keywords: Analysts revenue forecasts, Earnings forecasts, Stock price reactions and internet bubble

JEL Classification: M40, G12, G14, G29

Suggested Citation

Bagnoli, Mark E. and Kallapur, Sanjay and Watts, Susan G., Top Line and Bottom Line Forecasts: A Comparison of Internet Firms During and after the Bubble (June 2001). Available at SSRN: https://ssrn.com/abstract=274178 or http://dx.doi.org/10.2139/ssrn.274178

Mark E. Bagnoli (Contact Author)

Purdue University ( email )

Department of Accounting
West Lafayette, IN 47907-1310
United States
765-494-4484 (Phone)
765-496-1778 (Fax)

Sanjay Kallapur

Indian School of Business ( email )

ISB Campus, Gachibowli
Hyderabad, 500 032
India
+91 40 2318 7138 (Phone)

Susan G. Watts

Purdue University ( email )

West Lafayette, IN 47906
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
950
Abstract Views
4,731
rank
35,257
PlumX Metrics