Are Top-Line Worries Overblown?

The recent commentary coming out of talking heads has been that weak top-line numbers this earnings season have been a main culprit for the declines we've seen since the reporting period began last Monday.  The actual numbers dispute this argument.  So far this earnings season, 73% of companies have beaten their top-line revenue estimates.  As shown below, 73% is at the high end of the range seen during quarterly earnings seasons going back to 1999.  The average revenue beat rate since then has been 62%.

Maybe recency bias is involved.  On top of the argument that revenue numbers have been weak for the entire market, many of the guests on the various business channels today are arguing that revenue numbers in the technology sector have been really bad.  Sure, revenue numbers did come in weaker than expected for the two major tech companies that reported yesterday after the close (TXN & IBM), but prior to that, not one tech company had missed revenue estimates this earnings season!  As shown below, thirteen tech companies have beaten revenue estimates this season, while three have missed.  When Intel reported blowout numbers last week, all was good in the world.  Now all is bad in the world.  As mentioned earlier, the revenue beat rate is currently at 73% -- 11 percentage points above the historical average.  If it declines to the historical average over the next couple of weeks, then there is cause for concern.  But for now, one day of bad numbers does not make an earnings season trend, so don't buy into the top-line worries just yet.