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For the second day in a row two major U.S. tech stocks have taken a beating in one form or another. Yesterday it was IBM (NYSE:IBM) and Intel (NASDAQ:INTC). Today it is Google (NASDAQ:GOOG) and Microsoft (NASDAQ:MSFT) who find their share prices in trouble.
How the markets will be impacted today remains to be seen as both Google and Microsoft reported their quarterly earning reports after the close of the NASDAQ day. For Google, it was its Q2 report; for Microsoft it was the Q4 and year-end. Both companies reported increased profits for their respective fiscal quarters, but, unfortunately, as reports sometimes go, despite their mutual increases, both companies’ final figures came in well under forecast.
Google’s share price dropped in trading this morning by $26.28 to $884.40, a decline of 2.89%. Microsoft has suffered comparable damage percentage-wise, with a 8.24% decline of $2.94 to $332.50. While there is a significant difference in their share prices as it is, both have companies suffered comparably. The two companies are also comparable in that Microsoft’s Bing search engine is a vigorous competitor of Google’s.
The Microsoft Story
Microsoft shares have been holding at a 16% increase over 2012 at this time. They fell 3.4% to $34.22 in after-hours trading following the announcement of their results.
It’s not a case of poor performance. It’s a case of failing to meet expectations, mixed with a bit of uncertainty regarding how the company is going to fare keeping up with rapidly changing consumer demands. This is very similar to what we reported yesterday with IBM and Intel.
The performance issue for Microsoft is that the company was projected to return earnings of 75 cents per share for the fourth quarter. The actual earnings were $4.97 billion, which equates to 59 cents per share. The real irony is that during the same period in 2012 Microsoft lost $492 million, or six cents per share. Nearly every division of the company returned increases in revenues.
The operational issue for the company is the decline in PC sales where Microsoft has been king. Nonetheless, according to CFO, Amy Hood, the company continues to see “increasing consumer demand for services like Office 365, Outlook.com, Skype, and Xbox Live.”
The Google Story
It probably doesn’t bother you, but I am old enough that every time I think of Google, I think of a guy named Barney who had a wife three times his size. If you don’t know what I’m talking about, ask your grandfather.
Google’s stock had been up 29% this year before dropping after hours yesterday and in early morning trading today, despite a 16% increase in profits for Q2. The company’s total advertising revenue was up by 15%, helping to push the quarterly income to $3.23 billion from $2.79 billion in 2012. Total annual revenue was $14.11 billion, up 19%. However, like Microsoft, Google failed to meet projections of $14.41 billion. If it weren’t for the word “billion”, it wouldn’t seem like a big deal.
The operational issue for Google is also based on the move of technology from PC’s to mobile devices. Generally speaking, advertising, which is Google’s main revenue source, is less expensive on mobile devices. So you can see how the trend could be a concern for the company and its investors. The corporate staff sees the shift to mobile platforms, not as a problem, but as an opportunity. CEO Larry Page said “The shift from one screen to multiple screens and mobility creates tremendous opportunity. With more devices, more information, and more activity online . . . the potential to improve people’s lives even more is immense.”
Increasing revenues and profits is a wonderful thing, but missing the mark is often more important to investors. It’s a lesson that Hervé Villechaize tried to teach us over and over again on Fantasy Island as he told Ricardo Montalban at the beginning of each episode, “Look, Boss. It’s de plan. It’s de plan!”
