Expectations: Some very brief thoughts

A little thought experiment.

I have started to have concerns about the current practice many of you have of establishing and posting your expectations about quarterly results before they are announced.

My concern is that when the results come in that (your written down expectations), is what you are thinking about. You comment almost entirely about how well, and on which metrics, the company met or didn’t meet your expectations, instead of about how well the company’s business is doing.

Think about that! What I read is not they had excellent X but Y seems to be lagging and I wonder why, but instead I read X beat my expectations but Y came in below my expectations.

I, personally, tend to feel that how well the company is doing is much more important than any set of expectations, but maybe that’s just me.




I concur with you Saul.

I’ve never approached my investing using such criteria or a process for I feel I may be driven to make impulsive decisions.

Instead I use my 5 rules below and they have worked out very well for me thus far. These rules are “not micro focussed” so they tend to give me a more “holistic perspective” of how my investments are doing and their worth.

#1 Cloud Native
#2 SaaS
#3 Mission Critical - aka Moat ( This means that they cannot be plugged out easily)
#4 Rev Growth & Net Rev Retention
#5 Market Pulse: Being Hands-on, Research & feedback form my tech circle/network of friends that includes the biggest companies to startups.




Hey Saul!

As someone who has been one of those members that has posted expectations (and maybe we started that trend somewhere back when Bear started posting “X Company Priors” pre-earnings, which was something new at the time that I personally felt was pretty valuable), I think part of the reason for doing that is because these companies tend to sandbag guidance, and when we put our expectations out there, it’s to cut through that sandbagging and try to form a realistic target as opposed to some silly expectation that “the street” is projecting based off that guidance.

Snowflake is probably the biggest example of this, given everyone and their mother knows they will grow much more than 65% to 67% YoY this year, so I, for one, want to have more realistic expectations modeled for what they will actually end up doing based on their historical guidance.

That said, I have incredible respect for you and the board members and this board in general, and if the expectation setting posts (pre-earnings, post-earnings, or both) have gotten out of hand in your mind and you think we should dial that back, I’ll certainly make sure that any future posts I do are formatted in a way that does not over-emphasize my own expectations vs. results.

Open to your thoughts here, on board or off.



Thank you Saul, yes, I agree.

While I think it is reasonable to have expectations for some of the important performance metrics prior to the earnings report. For me at least, having pre-planned actions in mind is a much more difficult proposition.

Take Monday.com for example. Personally, I thought their most recent earnings report was actually quite good. But apparently, due to the fact that they fell a bit short of expectations the market reacted as if the entire business had cratered. But good lord, revenue was up 91% YoY. I guess the consensus expectations was more like 95%. OK, I think that’s enough to illustrate my point, I won’t go through every metric. Was the concern about a low-ball guide? Give me a break. Haven’t folks figured out the forecast and beat game? Maybe not . . . Whatever, my point is that I didn’t have the slightest inkling of liquidating my position because of anything that was reported or even said during the CC.

And as I write this Monday.com is down more than 12% on no news whatsoever. But, their competitor, Asana got beat up (down 22%) because of a bad quarter - no wait, they had a good quarter. Oh, their guide was not satisfactory, they got downgraded by some analysts and BOOM! The stock is sinking like a stone in deep water. I don’t have a positions in Asana, I did, but I sold it quite a while ago to free up some capital in order to buy Monday, But really, 22%!?!.

We’re just in a weird state. We don’t discuss macro conditions on this board, so I won’t expound on the obvious. However, in my mind a great deal of recent market activity has to do with things other than the business activities of the companies that we follow on this board.

I try to maintain some equanimity. I am confident that this will pass, but I can’t help but to be concerned with the longevity of this downturn. I’m sure I am not alone. I just wait for the turn around as there’s nothing else I can actually do - maybe juggle my allocations, but I am actually pretty comfortable with them as they are.


As someone who has been one of those members that has posted expectations (and maybe we started that trend somewhere back when Bear started posting “X Company Priors” pre-earnings, which was something new at the time that I personally felt was pretty valuable), I think part of the reason for doing that is because these companies tend to sandbag guidance, and when we put our expectations out there, it’s to cut through that sandbagging and try to form a realistic target as opposed to some silly expectation that “the street” is projecting based off that guidance.

As someone else who models a bit, I find myself agreeing with both Saul and Chris. We know these companies sandbag, so I’ve always found it helpful to think beforehand about what headline numbers would make sense if the underlying business is still intact. Therefore, I don’t want to base my model on whisper or blowout numbers. I want estimates that seem reasonable given what we know about the company. A more detailed post about the thought process can be found here: https://thestocknovice.substack.com/p/using-company-guides-t….

Beyond the headline numbers, I try not to lock myself into too many KPI’s because to Saul’s point they all interplay off each other in assessing the overall business. One metric being off can oftentimes be offset by another outperforming, so I want to stay open minded enough to consider that as I go. The headline numbers are more of a spot check before determining if the rest of the KPI’s balance in a way suggesting the broader trends are intact. I laid out some recent examples here: https://discussion.fool.com/are-we-therefore-basing-our-expectat….

As more modeling has hit the board, I believe we’ve started to see almost reverse sandbagging. What I mean by that is some of the modeling inputs are clearly too high given what we know. For example, this thread contains a model with a “minimum expectation” of a 6% beat from CRWD last fall even though there was little to suggest anything above 4% was reasonable (CRWD came in at exactly 4%): https://discussion.fool.com/crwd-q4-forecast-34987485.aspx?sort=….

Here’s an example where an 8% beat is modeled for SNOW even though we have multiple data points suggesting that number is too high, including a direct quote from management that 5-7% would be considered sizable: https://discussion.fool.com/snowflake-expectations-35063165.aspx…. Sadly, it turns out SNOW’s 2.7% beat has been a painful experience for most of us.

Lastly, here’s a thread modeling “the typical 9% beat” each of the next four quarters for MNDY, a company with just a 10.7% and 8.6% beat under its belt so far: https://discussion.fool.com/mndy-earnings-are-out-35058608.aspx?... Personally, I’m barely comfortable modeling an 8% beat next quarter based on this history, let alone 9% for the next four. Why? Because I’ve now been doing it long enough to know the size of the beats usually shrink as the company scales, not stay the same or even get larger.

Yes, Bear’s expectations posts have been excellent and are a great way to think about what these companies need to do to hold their premiums. However, it only works if the estimates and assumptions are supported by present and/or historical information. I believe dawdaws’ posts lay out the range of outcomes very well. Unfortunately, some others are modeling in beats that simply don’t align with the rest of what we know. Please keep that in mind if you decide to give this a try.



I think you’ve outlined both the benefits and the risks of modeling very nicely. I, for instance, would never try to model MNDY’s revenue growth right now because they don’t have enough history as a public company to have a realistic, consistent target.

CRWD on the other hand, to your point, is easier to model against, but you do have to consider the recent history (which I outlined in my post) that suggests they are narrowing in on the beat around 4% as you indicated, vs. WAYYYY back in the past 2 years ago when their beats were much higher and less consistent.

It’s still an art form, and does need to be used wisely, but I see Saul’s point that it can in and of itself be a distraction from simply looking at the company performance holistically vs. through the lens of someone’s individual expectations.

Either way, I’m still going to continue doing my modeling, but I do see how it can be misconstrued as too suggestive of a reliable predictor, even if used carefully and with the best of intentions, and with that in mind I’m very much open to discontinuing the nature of writing posts that use it as a framework for thinking about earnings results if that’s the consensus.


1 Like

with that in mind I’m very much open to discontinuing the nature of writing posts that use it as a framework for thinking about earnings results if that’s the consensus.

Thanks Chris, that would be much appreciated. The whole idea of the implied suggestion that one should sell out of their whole positions because one or two metrics miss by a percent or two, in an otherwise unremarkable report is bad investing, and a bad lesson to imply for learners.

And on the other hand, we had someone with very low expectations for a company call their results “fantastic” without noticing how ordinary they were, because he had set his mind on some preconceived lower expected metrics. It’s just not good for us. My opinion, anyway.




Chris -

Thanks for the comments. The whole point is it’s not an either/or conversation. There’s real benefit to being able to combine rough modeling and a holistic assessment, which is why I agree with both you and Saul. It’s up to each of us to find our personal balance knowing neither is perfect on its own. I’d say you should continue your modeling, and I for one find seeing it helpful. Just as I found it helpful when Saul laid out the numeric history to support his holistic assessment of CRWD’s quarter.

Make no mistake, identifying trends is a very important part of this style. But context is too. Finding a way to combine the two is where the rubber meets the road.


What I read is not they had excellent X but Y seems to be lagging and I wonder why, but instead I read X beat my expectations but Y came in below my expectations.


I sense you are looking out for people who are newer to this and might over-value some expectation or another. But for those same investing newbies, how can they evaluate whether X or Y is “excellent” or “lagging?”

I ask because, for me at least, the only way I know how to evaluate (for example) 70% revenue growth in Q1 2022 is based on my expectations. Is that excellent? Lagging? Well, for Cloudflare that would be a blowout. For Monday it would be a problem.

Maybe the answer is simple: if the trend is up, good, and if it is down, bad. More up? Even better. Steeper down, worse.

But maybe you think about it differently. If you don’t mind explaining, I think it could be helpful. And maybe not just for the newbies.



I’d like to thank Saul for this post, as I wholeheartedly agree. Pardon me as I ramble a bit…

I am a pretty lazy investor, that tends to move in and out slower than most here. Hell, it used to take me 2-3 weeks to digest earnings reports and conf calls, back when I had a 9-to-5. This is why I used to use the Fool advisory services heavily for decades, to save time plus allow me to learn. Then I found El Dorado here, as Saul had an investment thesis that gave me a better framework over the financials of the hypergrowth companies I focus upon. One of his valuable lessons was to focus on ACTUALS not DREAMS.

And now, I fully track every motion of these companies. I build up conviction, and it typically takes something big to get that conviction to waver (unless I see a crack in mgmt, then my loss of conviction is instant). I don’t really care what the market thinks about these companies day to day - hedge funds and most of retail are like consumer fashionistas, in that they ride trends (commodities anyone? crypto? how about SPACs? those were huge for a lot of 2021…), and freak out easily.

I focus on what I can control – my conviction. I watch the financials, which gives me the ongoing performance of the company, and the earnings call to hear mgmt walk through it. I look at other things too between those earnings calls, like the product cadence, the platform’s potential, investor conferences, and outside info on the competitive space or industry trends. Those are equally important, IMHO.

I feel we’re currently in a very reactionary market that is building into a coiled spring (you can see it on massive up days — market just wants some good news to come rushing back into growth, then panic and exit again). When will the tide rebound enough to bring me back to all-time high? I don’t know - but I believe it ultimately will if I stick to the hypergrowth investment thesis.

But I feel this hyper-reactionary market is taking a toll on this community. (Well, that and 10000 posts on Upstart a month… heh)

I feel that expectations in and of themselves are not the problem. I don’t really set exact numbers myself, only trend expecations, as I prefer to look at ACTUAL EXECTION and carry out the trends over them. Saul does this on taped together pages of graph paper! It is good to understand the trends over key financials and KPIs, and then, going forward where you want them to fall. I do that part mentally, and some write it down.

The issue seems to be in using those expectation too exactly, as rails for initiating an immediate reaction. But I think it important that if you are comparing execution to expectations in order to make immediate decisions, make sure they are YOUR expectations or the COMPANY’S, not the market’s or the whisper or the street’s or an internet post from others.

I also don’t give much importance to muted fiscal year guidance given in Q1 – except how it sits over the trends seen in the actuals being reported. There is often nuance to the numbers, as Snowflake just proved, and Datadog last year. Immediate reactions miss this. I think listening to the call is a must.

NUANCE: Snowflake’s “miss” at top line can be thought of as a seasonal ebb and flow of usage, plus a minor impact of a performance improvement test. As for their “massive deceleration” in guidance, as mentioned before, it is an intentional performance improvement. (Adding in the $160M impact from that means they just gave NEARLY the same guide as last year, +79-81% vs +81-84% a year ago.). I myself look at last year’s guide and comparing that to reality it landed at, then apply that lens to this year’s guide.

These are companies that are executing day in and day out, that live and breath their industry. The nuance from mgmt is critical to fully understand the company, and your conviction. Where I really took hold of Saul’s rules is in finding the best companies, then trusting them to execute (trust but verify). But know that hiccups are inevitable! You cannot hold a company for a year without encountering one or two. If you are going to react to hiccups that lead to one or two of the KPIs underwhelming, understand that you have a much shorter-term focus than most of the members here, or are being way more strict than most.

I believe this is the crux of Saul’s post.

NUANCE: For instance, Bill had a negative move in op margin over last 2Q, and, last Q, an alarming shift in cashflow margins to the negative. This Q, we could watch that profitability shift reverse, and it is back on trend, swinging positive on op margin and moving cash flow back towards positive. This hiccup is explained in hindsight by a bit of turmoil as they folded in 2 near simultaneous acquisitions. I was starting a position during this turmoil instead of panicing out.

The MARKET is immediate in reacting to the initial numbers without any nuance. Trying to beat the herd at quick motions is, IMHO, a letting emotions win. You may be right a few times, but ultimately seems a losing game. Why trust the market’s first reaction to be making the right call instead of your conviction? The market makes terrible calls all the time. (The goal is to make fewer.) I think the market is doing it now.

We’ve had a lot of success here in hypergrowth investing and Saul’s rules set in the knowledge base for isolating category crushing COMPANIES. What the market thinks of that company at any moment (in the stock price) can be entirely divorced from execution.

There is nothing wrong with quick moves, and sure, there are companies that warrant it at times (looking at you Fastly). But at least be informed and make those moves on YOUR terms, not the markets. As the Hitchhiker’s Guide to the Galaxy said: Don’t panic.

Don’t fall into the fallacy that you can beat the high-speed algos on speed. You can’t. Embrace the nuance. One of the big lessons from the Fool was that TIME is your greatest advantage over the big boys. I think that still applies to Saul’s methods.

  • muji

I agree wholeheartedly with Saul and Muji, and wish to add just one quick point which has perhaps not yet been fully highlighted, and that is that one person’s expectations for a KPI or KPI’s - even if that one person is extremely smart, as most of us on this board believe we are - is completely irrelevant, should one wish to profit from same, unless your expectations are somehow, miraculously, aligned with the market’s expectations.

I know mine aren’t. And I’ve historically never bothered to come up with KPI expectations but decided to give it a bash in my January write-up. I phrased it as “what I’m hoping for, and what would make me happy”, in contrast to trying to define some form of mechanistic action to take, which I believe is a mistake.

For Revenue, this is what I was hoping for (“exp”), where they ended (“act”), and what happened to the stock the day after results (“Stock move”).

All 4’s results were in line with my expectations, and the stock dropped between 4% and 25% after…

exp: $224m
act: $222.3m
Stock move: -4%

exp: $195m
act: $193.6m
Stock move: -10%

exp: $255m
act: $255.6m
Stock move: -16%

exp: $96m
act: $95.5m
Stock move: -25%

So what?

In addition to what Saul and Muji said, it means that my short-term expectations are irrelevant to what the share price will do in the short term. So trying to tie mechanistic actions to performance against my expectations in isolation is not a good strategy, and the further I stray down that path, the closer I come to being a day-trader. I’m not saying its a useless exercise, but it tells me nothing in isolation and may be detrimental if I were to focus too much, and act too quickly, on that.



I have to really thank muji, because he explained this one even better than I had too. Much, much, better! What counts is what the company is doing, not what the algorithms are going to respond to.

As Muji said, he and I don’t have set metric expectations. We have holistic expectations about what we want from the company’s performance and expectations, and that usually includes what is actually written in the press release, and what the conference call says, and the investor presentation, and what other announcements they have made, and not just what the headline numbers are, etc.

I see too many people discussing a company’s results in terms of “they missed my expectations here, and they were above my expectations there” rather than how the company’s actual business and prospects are.

People who try to beat the algos by reacting to the headline numbers are just day trading. They aren’t reacting to a significant change in the company’s business. They aren’t investing. They just think that the market will react to such and such a metric so they are trying to make a quick buck. And that is not what our board is all about.