A company can report growing profits and see its shares fall the same morning. Prices already contain what the market expects, so only the departure from expectation carries new information.
Current price embeds a forecast
A share price reflects expectations of future cash flows, which means today's price already assumes a particular earnings trajectory.
If results match that trajectory, nothing has been learned and there is no reason for the price to move on the announcement.
The reaction is driven by the gap between what was reported and what was assumed, in either direction. A company growing profits strongly can still disappoint if the market had priced in faster growth than arrived.
This also explains why weak results occasionally lift a share price. If expectations had fallen further than the outcome, the report is better news than what was already reflected in the price.
Consensus is assembled from analyst estimates
Data providers aggregate published forecasts from covering analysts into a consensus figure for revenue, earnings and other measures.
That consensus is a proxy for market expectation rather than a measurement of it, and it can drift from what active investors actually anticipate.
The informal expectation traders work to is sometimes described as the whisper number, which explains occasional reactions that appear to contradict the published consensus.
Guidance often matters more than the quarter reported
Results describe a period that has already ended, while forward guidance updates the trajectory that current valuation depends on.
A strong quarter accompanied by reduced guidance revises the future downward, and the future is where most of the value sits.
This is why prices frequently move on the management commentary during the call rather than at the moment the numbers are released.
Expectations can be managed downward
Management teams have an interest in setting expectations they can exceed, since consistently beating consensus supports the share price over time.
The practice produces a pattern in which most companies report modest beats, which in turn causes the market to discount small beats as routine.
The bar effectively resets, so exceeding consensus by a small margin can be treated as a disappointment.
The measure reported is not always comparable
Companies frequently present adjusted earnings that exclude items management considers non-recurring, alongside the figures prepared under accounting standards.
Consensus is usually built on the adjusted measure, so the headline comparison may exclude real costs that appear in the audited statements.
Reading which measure the comparison uses, and what was excluded from it, is what separates a genuine surprise from a presentational one.