International Business Machines Corp. (IBM), Microsoft Corporation (MSFT), Intel Corporation (INTC) & Google Inc (GOOG): Houston, Big Tech Has a Problem

A different problem to have
While Google Inc (NASDAQ:GOOG) was the big tech outlier that reported 19% year-over-year revenue growth for its second quarter earnings results, investors still won’t be calling it a home-run quarter. The reason being that the company’s cost per click — or CPC — declined by 6% year over year and 2% from last quarter, inviting the possibility of a structural headwind lingering within its advertising business. Essentially, CPC is Google Inc (NASDAQ:GOOG)’s version of average selling price, which if revenue growth were slow, it would probably become rather painful for investors. Luckily, that doesn’t seem likely to happen anytime soon, considering Google Inc (NASDAQ:GOOG)’s paid click volume grew by 23% year over year and 4% from the first quarter to help offset this headwind. In other words, Google has time to sort this out before investors really start getting concerned.

Too big to grow?
When companies reach that “megacap” status as these tech titans have, it’s often difficult to drive revenue growth to the point where it translates to growing the bottom line in a meaningful way for investors. Over the long term, earnings growth can’t be fueled by share buybacks and cost-cutting measures alone; it needs to be driven by a company’s ability to enter new markets, to gain market share in existing markets, and to develop a competitive advantages.

That said, investors are only going to reward top line growth for so long. If you’re an investor in a company that’s struggling revenue growth, you should think long and hard about how it can create new revenue generating opportunities and whether it will big enough to matter.

The article Houston, Big Tech Has a Problem originally appeared on Fool.com.

Fool contributor Steve Heller owns shares of International Business Machines Corp. (NYSE:IBM), Google, and Intel. The Motley Fool recommends Google and Intel and owns shares of Google Inc (NASDAQ:GOOG), Intel Corporation (NASDAQ:INTC), International Business Machines Corp. (NYSE:IBM), and Microsoft Corporation (NASDAQ:MSFT).

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