Technology titans Google and Microsoft delivered lackluster earnings results on Thursday that failed to meet Wall Street expectations, in an unusual pair of stumbles for two of the most reliable names in tech. The underwhelming results spooked investors, who pushed shares of both companies down sharply in after-hours trading, wiping out a combined $30 billion in shareholder value.
“Google had multiple areas that were weaker than we anticipated from a revenue perspective,” Scott Kessler, head of technology research at S&P Capital IQ, told TIME. “Google is going to continue to rise based on tech trends, but because they don’t give guidance, there can be some pretty big surprises that end up adversely affecting the company’s performance and stock price.”
Gene Munster, an analyst at Piper Jaffray, told CNBC after Google’s report that “the numbers look a little rough, but I don’t think there’s anything functionally or structurally wrong with this company.” Macquarie Securities’ Ben Schachter wrote: “Optically, this was messy, but the fundamentals were basically okay.”
The same can not be said for Microsoft, which reported particularly ugly results, including a $900 million charge related to the company’s struggling Surface tablet device.”It doesn’t inspire a lot of confidence,” Nomura Securities analyst Rick Sherlund told the Associated Press. “You’re in the hardware business now, and pretty shortly after entering it you have a pretty big write down. That’s embarrassing.”
Microsoft said its results were “impacted by the decline in the PC market.” Microsoft’s flagship Windows business faltered as the company tries to transition into the post-PC era, company chief financial officer Amy Hood told Wall Street analysts on a post-earnings report conference call. On Friday, Google had pared some of its losses, while Microsoft continued to fall, posting a 11% decline by midday.
Google reported solid revenue of $14.11 billion for the quarter, an increase of 19% compared to last year, but those results fell short of the $14.42 billion that analysts were expecting. In the previous two quarters, Google’s revenue growth had topped 20%. Among big tech companies, Google’s results have been particularly strong lately, but expectations may have exceeded the company’s performance. The search giant reported earnings-per-share of $9.56, well short of the $10.78 that analysts had been looking for.
On a conference call with analysts, Google CEO Larry Page struck an upbeat note, saying that “the shift from one screen to multiple screens and mobility creates tremendous opportunity for Google. With more devices, more information, and more activity online than ever, the potential to improve people’s lives even more is immense.”
Page touted the success of the company’s Android mobile platform. More than 1.5 million Android devices are being activated every day, and a whopping 900 million have been have been activated since Android launched in 2008. Page said that more than 50 billion apps have now been downloaded from the Google Play store, and the company has already paid out more money to Android developers this year than in the whole of 2012.
Wall Street analysts are particularly focused on Google’s “cost per click,” which is the price marketers pay to advertise on the company’s platform. As users shift from desktop computing to mobile computing, Google’s cost per click has declined, because marketers tend to pay less for ads on the company’s mobile search platform, compared to its desktop search platform.
Last quarter, Google’s cost per click declined 6%, double the the 3% that analysts had been expecting. “The CPC drop is a bit surprising, and perhaps raises again the question of whether Google really benefits from the mobile shift,” Mark Mahaney, a stock analyst at RBC Capital Markets, told the Wall Street Journal.
For its part, Microsoft said quarterly revenue was $19.9 billion, which fell short of the $20.73 billion that analysts were looking for. The company reported earnings-per-share of 66 cents, below the 75 cents that analysts had been expecting. “That’s the biggest miss we’ve ever seen from Microsoft, the biggest that I could remember,” Brendan Barnicle, an analyst at Pacific Crest Securities, told Reuters. “It looks like everything was weak and that’s what we need an explanation on.”
Microsoft was buffeted by the structural shift away from desktop PCs, where Microsoft has traditionally be strong, and toward smartphones and tablets, where the software giant has struggled relative to some of its fellow tech titans. “We know we have to do better, particularly in mobile devices,” Hood said. Next week, all eyes will be on tech titans Apple and Facebook, which report earnings on Tuesday and Wednesday respectively.