Paid Analysts Missing the Mark

GigaOM has the scoop on how poorly Wall Street Analysts predicted last week’s earnings announcements. Analysts missed Amazon’s profits by a whopping 69%, and Apple blew away forecasts by 35%. Taking the leading internet companies, Wall Street lowballed earnings by 9%, both this quarter and last.

Analysts – What are They Good For?

There was once a time when analysts were privy to far more information than the average investor. Analysts get flown to the companies they cover, take quarterly tours of the company headquarters, and have lunch with the top company brass. Keeping such close tabs on company finances are what historically allowed analysts to make sound earnings predictions for the investment houses they represent.

Granted, there has always been a certain amount of Three Card Monte with earnings predictions. Technology companies in particular have always played a game of downplaying their projections for analysts, so they can hit the Street with surprise earnings each quarter. But last week’s blowout earnings are nothing short of an embarrassment for professional analysts.

Analysts Growing Obsolete?

Bloggers have noted there is less and less incentive for investment houses to fund sell side research. The best talent is flowing to the buy side. With the speed at which information is disseminated on the internet, along with a host of noteworthy finance bloggers, I find it increasingly unclear why anyone would pay for sell side research. As individual investors become even more empowered, the internet (read:ValueWiki!) will increasingly fill the research void left by the collapse of sell side research and the slower speed of mainstream media.


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