Gone with the old and in with the new! Well this is how any new year is welcomed. However 2012, so far, has provided two tech giants with a bag of mixed blessings. Google Inc has seen its share price plummet despite posting strong revenues, while Microsoft benefitted with higher share price even though its revenue figures were not up to the mark.
GOOGLE GOT DUNKED
The story of Google?s third quarter earnings, needless to say, is an interesting one. The company reported a 27% increase in revenues for the last quarter, reporting 3 month revenues of $10.6 billion with its net profit rising 6.4% to $2.7 billion. According to some analysts, there seems to be a progressive upward growth while considering the numerous litigations the company had faced. However, it was not good enough to meet Wall Street estimates, sending the shares tumbling.
?The suits at Wall Street just want to show off that they still have power and no matter how profitable Google is, as long as they don?t show respect to the suits, they cannot raise above the rest,? Jamie Olson, a tech analysts from Boston, told Arabian Gazette. When asked about the issue of respect, the analyst said it could be seen in the next few days to come. However, rumour has it that Google got dunked because of its stance against the Internet policing acts such as SOPA and PIPA.
Larry Page, chief executive Google, seems to be unaffected by the dunk. He sees and paints a much rosy picture. Hailing 2011 as ? a great year”, the supremo added: “Google had a really strong quarter ending a great year as quarterly revenue blew past the $10bn mark for the first time,? Larry said. ??I am super excited about the growth of Android, Gmail, and Google+, which now has 90 million users globally – well over double what I announced just three months ago.”
He added that Google had stopped investing in around a dozen products and ?doubled down on the really big bats,? such as its Android mobile phone operating system and Chrome web browser.
CLICK ON ADS
“Expectations were very high and they have missed that,” said Trip Chowdhry of Global Equities Research. “Unlike Microsoft and Intel, estimates for Google have been rising for a few months.”
“Expectations had got ahead of themselves for Google, largely because investors don’t have a good feel for what happens outside the US,” said Jordan Rohan of Stifel Nicolaus.
The main culprit blamed for the lesser than expected revenues seems to be ?Click on ads?. The number of clicks on Google?s search adverts rose significantly in the fourth quarter, but the amount that Google was able to charge advertisers for each click fell 8%. This doesn?t seem to make much sense, does it? Well let’s clarify the situation! It all started in 2008 when Google decided to redesign the way its text ads worked.
Users found themselves clicking on fewer ads by mistake, which drove down the number of paid clicks but made advertisers happier. Landing on an ad page you never intended to see does not convert into a whole lot of sales. Cost per click went way up. Later the same year, Google redesigned those ads to make them more pleasant to look at, thus boosting the click rates without damaging CPC much.
The company made small changes like these over the time and the downside of one change seemed to be cancelled out by the benefits of other ones.
According to Susan Wojcicki, vice president?advertising, Google implemented about 20 modifications in the last quarter alone. The unusual thing here is that lots of these moves pulled the volume-versus-profitability equation in the same direction, generating 34% more clicks year over year but at 8% lower cost per click.
?This is just a small glitch, a small bump on the road ahead. It will be wrinkled out soon enough and Google would be a high flyer once again,? Josh, a tech geek from Dubai Internet City, told Arabian Gazette.com.
Google?s performance in North America seems to be strong, but Europe seems to be the weak link in the chain, particularly among countries that are undergoing austerity measures.
Hamilton Faber, an analyst at Atlantic Equities LLP in London was quoted by the BBC as saying: ?There are definitely some challenges from Europe. Europe seems to be the one area that?s a little bit tricky.?
Google?s revenues may have been frowned at, but Microsoft seems to be progressing well comparatively. Microsoft posted flat earnings of $6.62 billion in the same quarter, seeing strong business demand for softwares and services. Revenues rose 5% to $20.89 billion for the same period.
A fall in global computer sales has hurt Microsoft’s Windows operating system, but overall revenue rose at its server, Xbox 360 and online services arms. Ironically, compared to Google’s case, Wall Street welcomed the figures, with Microsoft’s shares rising 2.1% in after-hours trading.
It seems that Microsoft exceeded expectations and the bankers rewarded it for that. Analysts were expecting a fall in business at the Windows division due to slower sales of PCs.
Colin Gillis, an analyst with BGC, said: “People were afraid it was going to be much, much worse.”
Tighter cost control and a continuing reduction of losses at the Bing search engine helped boost the figures, he added.
Technology analysts believe the computer industry is facing a worldwide shortage of hard disk drives due to flood devastation in Thailand hitting suppliers. Furthermore, Windows is also facing competition from the growth of tablet computers such as Apple?s iPad and mobile devices using Google Android system.
However, Microsoft hopes of making a come back with vengeance at the release of Windows 8, an operating system for PCs and mobile devices.
Microsoft chief executive Steve Ballmer said in a statement: “We delivered solid financial results, even as we prepare for a launch year that will accelerate many of our key products and services.”
The coin, called expectation, sure has two sides. If the end result is better than expected, even though it could be in the negative territory, it is rewarded. However, if the end result is less than expected, even though it is in positive territory, it would be punished. It doesn?t make much business sense does it? Why punish when obviously the result is positive?
Jonathan Muse, an analyst at Jacobs and Sons Asset Management Consultancy in San Francisco, spoke to Arabian Gazette regarding both the sides of expectation. ?The thing is that the market is always rooting for the underdog to win. In this case Microsoft has become the underdog, thereby reaching results which were not expected to catapult it into super stardom. Whereas Google, a reigning super star, has to keep up with constant expectations if it needs to stay on top. That?s just the way the game is played,” the California-based tech guru explained.
?Because of some stuffy guy in a suit decides he wants a corporation to do exceptionally well, whereas he is not involved in the day to day operations of the company, or does not understand that certain factors such a natural disasters cannot be controlled, doesn’t mean a company has to suffer,? he remarked.
Mary Ann, a sociology professor told Arabian Gazette: ?It just goes to show that the masses are ruled by arrogant elites who singlehandedly determine the success of a corporation, thus the success of many families and communities. As long as such a hierarchy exists, no revolution can reform the system.?
Source: BBC, The Independent