The latest release of quarterly earnings by Microsoft Corporation (NASDAQ:MSFT) and Google Inc (NASDAQ:GOOG) present a picture of slowing sales and decreasing ad revenue. The two companies appear to be struggling to find the right products and services to drive their revenue growth. Dealing with decreasing PC sales and a challenging mobile web environment led to results which missed analyst expectations. After the earnings release, Microsoft Corporation (NASDAQ:MSFT) and Google Inc (NASDAQ:GOOG) shares opened 3.5% and 9.3% lower the next trading day.
Microsoft Corporation (NASDAQ:MSFT) dragged down by PC market
Fourth quarter results for Microsoft Corporation (NASDAQ:MSFT) showed the impact of continuing declines in the PC market. Net income for the period ended June 30 was $4.97 billion and diluted EPS was $0.59 per share versus a loss of $492 million, or ($0.06) per share. The results reflect a $900 million write-down related to the company’s price cutting on its Surface RT tablets, which affected EPS amounts by $0.07. According to USAToday, analysts polled by FactSet were expecting EPS of $0.75; revenue was expected to come in at around $20.7 billion and instead was $19.9 billion.
Despite the disappointing results, Microsoft Corporation (NASDAQ:MSFT) had strong demand in its enterprise and cloud offerings. For example, Server & Tools fourth quarter revenue grew 9%. The company also saw revenue grow in the following divisions: Windows (6%), Online Services (9%), and Entertainment and Devices (8%). Kevin Turner, COO at Microsoft Corporation (NASDAQ:MSFT), noted that the company has a leadership position in the cloud, with greater market adoption of the company’s cloud services, such as Office 365, Windows Azure, and Dynamics CRM.
In the months ahead, investors should watch for Windows 8.1 and how it addresses concerns related to Microsoft devices’ combination of touch + mouse + keyboard interface. The software update will be made available to third-party computer manufacturers in August.
Another interesting development is the arrival of Intel’s new Haswell microchips, which could also boost demand for Microsoft’s devices. Charles King, tech analyst at Pund-IT, told USA Today the chip was made to support Windows 8 features like touch enablement, longer battery life, and voice and gesture recognition.
Google Inc (NASDAQ:GOOG) challenged by mobile ads
As desktop ad revenue begins to slow for search engines, the next moneymaking opportunity lies in mobile devices. So far, increasing revenue from mobile ads has been a struggle for Google Inc (NASDAQ:GOOG), and it missed Wall Street estimates of $11.33 billion of net revenue and EPS, minus the cost of stock options, of $10.78 per share. The company reported second quarter net revenue of $11.1 billion, up from $9.2 billion a year ago. EPS rose to $9.54 per share from $8.42 per share.