Though Google financial results shone this week, other key technology companies showed signs of weakness that have IT investors worried.
As usual, Google was the star of earnings week, reporting Thursday that first-quarter profit sky-rocketed 69% to $1 billion (£499 million), mainly because of advertising revenue, which is rising faster than it has for arch-rivals Yahoo and Microsoft. Excluding one-time charges, the company's earnings per share (EPS) was $3.68, compared to analyst estimates of $3.30, according to Thomson Financial. Its after-hours share price jumped immediately by more than $11 to more than $482.
But worries about online profits, in general, arose after the market closed Tuesday, when Yahoo reported that earnings for the first quarter were $142 million, declining from $160 million in 2006 and falling short of analyst expectations. Fearing that Yahoo will experience continued earnings difficulty in the highly competitive search market, tech investors dumped company shares this week and analysts lowered their guidance on the company.
For example, brokerage William Blair & Co. lowered its second quarter EPS estimate to $0.11 from $0.12. Yahoo has generally been praised for moving aggressively in snapping up social networking services, such as the Flickr photo-sharing site, and for efforts it's making on Project Panama, a new way of ranking search results combining paid ranking and search result algorithms.
But Google's announcement last week of its planned $3.1 billion acquisition of DoubleClick, which manages online advertising and manages ad campaigns, took the wind out of Yahoo's sails. Shares closed Tuesday at $32.09, plunged to $28.31 Wednesday and continued to decline during the week.
Meanwhile, eBay did not get any plaudits for a generally strong, first quarter performance. The online auction giant reported Wednesday that quarterly earnings were $377.2m compared with $248.3m in the same quarter last year. Revenue rose 27% to $1.77bn, while analysts surveyed by Thomson Financial had forecast eBay's revenue at $1.72bn. Nevertheless the company's share price dropped $1.39 Thursday to $33.09.
In the tough online market, analysts appear to closely examine any weakness in a company's business. Analysts noted that eBay's growth in its Marketplace auction services had slipped to 23% year-over-year growth, from the 24% reported in the fourth quarter. This is leading to speculation that this key business is maturing, and slowing down.
IBM Tuesday reported quarterly earnings of $1.8bn and EPS of $1.21, equalling the estimate of Thomson Financial analysts. However, a slowdown in its US enterprise business spooked investors, who pushed the company's share price lower. After closing before the earnings announcement Tuesday at $97.12, company shares plunged to $94.80 Wednesday and continued to drift lower during the week.
In the components arena, Intel reported flat revenue for the first quarter, but said that layoffs and tax benefits helped it generate a 19% increase in profit from the year before, to $1.6bn. Intel share prices jumped to $21.35 Wednesday after closing $20.98 Tuesday, and continued to rise during the week. Nevertheless, brokerage houses cut their guidance on the company for the next few quarters. Credit Suisse, for example cut its 2007 EPS estimate for the company to $1.04 from $1.08, warning that Advanced Micro Devices (AMD) will continue to exert pricing pressure on Intel.
However, AMD itself appeared to fall victim to price competition Thursday reporting a loss of $611m, down from a profit of $185m a year ago. Though much of that loss was due to charges for acquiring and integrating graphics chipmaker ATI, the drop scared investors. Company shares started to decline in after-hours trading Thursday.