AOL's Whisper Number
Plus, think Windows 98, think coffee. No?

by Jeff Fischer

ALEXANDRIA, VA (Aug. 3, 1998) -- America Online announces earnings tomorrow and $0.19 per share is the published estimate. Unfortunately, of more concern to the market is the all important "whisper number."

This annoying little creature called the whisper number is the equivalent of note passing in grade school -- notes that read, "Bobby likes Julie. Really. Pass it on!!!" Nobody has determined for certain how and why whisper numbers came to exist, but they did so in the past two years, and I think it has much to do with the Internet and everyone being connected and able to communicate freely and instantly.

Rumors spread rapidly on the Internet, analysts talk, numbers get batted around -- I can just imagine some overpaid stock jockey writing to a buddy analyst, "Yeah, I think it'll be $0.20 per share." He won't have any reason to think $0.20 rather than $0.19, but he says it anyway. He bets on horses over the weekend, too -- it's fun. Next thing that happens, his rumor spreads to another analyst who agrees or adds to it, and then shares it with another, and another, and before long there's a "whisper number" existing out there, in whatever amount. Thus, the phenomena began this way, I imagine. Now, unfortunately, it's common practice and has even become "formalized."

Usually the whisper number is a few pennies above the published estimate, which makes incredible sense, because most companies strive to report results that are a few pennies above estimates for "good show." Everyone wants to be an over-performer (this desire probably harkens back to grammar school days, too), so companies guide analysts to the conservative side. Analysts then whisper to one another, "It'll actually be a few pennies higher." Anyway, what exactly is the whisper number for AOL?

Well, you can probably find it in tomorrow's Wall Street Journal, or perhaps somewhere online tonight. But when you do read the so-called whisper number for AOL (or any company), do yourself a favor and question -- really question -- where it came from and what it means, if anything.

This morning The Motley Fool received a phone call from a Dow Jones reporter asking us, "What is the whisper number for AOL's earnings?" Our Fool who took the phone call, smiling, told him that we don't have that sort of information and that we aren't exactly interested in it. He then gave the journalist the phone number of a large mutual fund company. Instead, though, imagine if he had spit out a number -- any number, say, five cents above the published estimate -- and this reporter had then printed it?

The validity would be nil, of course, but the damage would be done. As preposterous as that scenario seems, that's how easily whisper numbers can get published and bandied about -- through simple word of mouth. You don't need to provide support for a whisper number. The name doesn't lie. It's an unsubstantiated little number volleyed about through phone lines, email, scribbled on the edge of faxes, mumbled in an elevator, and so forth.

To be fair, a whisper number is one way for analysts to compensate for the consistent policy of companies to guide analysts to the low side. To be polite, analysts publish numbers in line with company guidance. Behind the scenes, though, they truly believe that numbers will differ, so they share that with others. But, the fact that Dow Jones is calling The Fool for a whisper number shows how the practice is out of hand. It was out of hand two years ago. Remember when Iomega supposedly fell in 1996 because it missed the whisper number posted on the Fool's Iomega message board?

As of that moment, it was obvious that times had definitely changed.

In the old days, everyone had their own expectations, and reacting to company results was more of an individual experience. Now, instead of individual expectations, everyone has a group -- or shared -- expectation due to the ease of mass communication. The danger of this is, when expectations get out of hand through hyperbole and just plain bad information, unknowing shareholders can suffer. Imagine the guy in Iowa without a computer saying, "Why the heck was my stock down $5 yesterday? It reported a strong quarter. Something else must be wrong. Should I sell?" When, in fact, the worst thing the company might have done is miss some insane whisper number, meaning the stock should rebound soon and continue on its merry way.

Anyway, no, Dow Jones -- we don't have a whisper number for AOL. Or, if we did, it would be something like this (read in a very low whisper): "Yes, lean in. Shhh. OK. Ready? We think AOL could be worth much more five years from now. Shhhhh... don't tell anybody. We thought that four years ago, too."

Next up: is it time for a gag order? Seriously -- if this report is true, it's time to get a little queasy. Plenty of people have criticized Microsoft (Nasdaq: MSFT) for being an unoriginal copycat giant that strong-arms its way into unfair positions in its industry. It got ideas for Windows from Mac, it copied browser features from Netscape, its online service first modeled itself after AOL, and now Microsoft might be copying... Starbucks? (Nasdaq: SBUX).

Reportedly, Microsoft is offering Windows 98 branded coffee through Borders Group (NYSE: BGP) book and cafe stores. That's right. Windows 98 coffee. It makes a lot of sense, doesn't it? When you think Windows 98, you think really good coffee, right? That, or you think of cars randomly throwing their transmissions onto the highway and jerking to a sudden and permanent halt. But mostly, you think of coffee and jazz when you think of Windows 98. I'm sure that you do.

Good, because Microsoft is also offering a jazz CD called "Music To Install Windows 98 By." Yeah, Starbucks came out with its first jazz CD a few years ago, and, of course, it began selling coffee 27 years ago. Now Microsoft is following suit. Perhaps, both being Seattle companies, a marketing guy from Starbucks -- plum out of ideas -- stumbled his way into Microsoft's ranks and recycled his old strokes of genius: "Hey, how about... coffee? Windows and coffee? And how about a jazz CD, too? Windows, and coffee, and jazz?"

Perhaps the biggest kick in the head is that Microsoft is selling its coffee for $6.99 a pound.

Ya know, I wonder if you can only grind Microsoft coffee in a Microsoft bean grinder. I bet it doesn't quite taste right using a Starbucks machine. Odds are, though, it's probably Starbucks coffee that the company is selling under its Windows brand, with minor alterations to make it a little worse for wear -- reminding one of Mac technology and its offspring, Windows.

Ba-boom. Ching. Anyway...

The Fool had a losing day, falling 1.27%. Considering that every stock but one declined, the percentage loss was surprisingly not too ugly. We nearly kept even with the Nasdaq. Interestingly, a majority of large-cap stocks on the market are more than 25% from their highs, while most smaller-cap stocks are at least 40% off their highs. The weak market has brought down the laggards, and the Fool Port has its share.

To close, we'll announce the winner of the Trump Hotels contest in the coming days. We're still reading through the Trump posts while noting the great vacation spots. (The company announces its loss soon, too.) In the meantime, keep an eye out for Microsoft's "Big Windows 98 Mac" hamburgers, and "Windows 98 Is It" soda, and also its "Fall into the Windows 98" clothing stores. Finally, maybe it'll launch "The Motley Idiot" on Microsoft Investor.

Have a Foolish Monday... call your friends, whisper what you think AOL will report as earnings tomorrow, and be a part of the faceless "whisper" crowd!

Fool on...

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08/03/98 Close

Stock Change Bid ---------------- AMZN -2 7/8 108.00 AOL - 3/16 116.94 T -1 1/8 59.50 DJT - 3/8 6.69 DD - 1/16 62.06 XON -1 5/8 68.50 INVX - 1/8 13.38 IP + 3/8 45.00 IOM - 1/8 5.13 KLAC -1 5/8 28.13 LU -1 3/4 90.69 SBUX -1 9/16 40.25 COMS - 3/4 23.94 TDFX - 7/16 13.88
Day Month Year History Annualized FOOL -1.27% -1.27% 45.20% 387.30% 48.66% S&P: -0.73% -0.73% 14.63% 142.68% 24.85% NASDAQ: -1.14% -1.14% 17.88% 157.03% 26.66% Rec'd # Security In At Now Change 8/5/94 710 AmOnline 3.64 116.94 3115.72% 9/9/97 580 19.11 108.00 465.13% 5/17/95 1960 Iomega Cor 1.28 5.13 300.26% 10/1/96 84 LucentTech 23.81 90.69 280.91% 8/12/96 130 AT&T 39.58 59.50 50.34% 4/30/97 -1170*Trump* 8.47 6.69 21.03% 2/20/98 200 Exxon 64.09 68.50 6.88% 2/20/98 215 DuPont 59.83 62.06 3.72% 2/20/98 270 Int'l Pape 47.69 45.00 -5.64% 7/2/98 235 Starbucks 55.91 40.25 -28.01% 8/24/95 130 KLA-Tencor 44.71 28.13 -37.10% 1/8/98 425 3Dfx 25.67 13.88 -45.94% 8/13/96 250 3Com Corp. 46.86 23.94 -48.92% 6/26/97 325 Innovex 27.71 13.38 -51.73% Rec'd # Security In At Value Change 8/5/94 710 AmOnline 2581.87 83025.63 $80443.76 9/9/97 580 11084.24 62640.00 $51555.76 5/17/95 1960 Iomega Cor 2509.60 10045.00 $7535.40 10/1/96 84 LucentTech 1999.88 7617.75 $5617.87 8/12/96 130 AT&T 5145.11 7735.00 $2589.89 4/30/97 -1170*Trump* -9908.50 -7824.38 $2084.13 2/20/98 200 Exxon 12818.00 13700.00 $882.00 2/20/98 215 DuPont 12864.25 13343.44 $479.19 2/20/98 270 Int'l Pape 12876.75 12150.00 -$726.75 8/24/95 130 KLA-Tencor 5812.49 3656.25 -$2156.24 7/2/98 235 Starbucks 13138.63 9458.75 -$3679.88 6/26/97 325 Innovex 9005.62 4346.88 -$4658.75 1/8/98 425 3Dfx 10908.63 5896.88 -$5011.75 8/13/96 250 3Com Corp. 11715.99 5984.38 -$5731.62 CASH $11876.47 TOTAL $243652.03

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