As it happens in astronomy, some planets cross each other’s orbits. Something similar became evident in stock markets with International Business Machines Corp. (NYSE:IBM), Microsoft Corporation (NASDAQ:MSFT), and Google Inc (NASDAQ:GOOG) reporting their quarterly numbers on the same day – April 18, 2013. These are not just important companies but they share history too.
Microsoft was the prodigy boy that sneaked the software game from under the nose of IBM when the latter used to be the biggest game in technology space. As history would have it, David became Goliath and some decades later, it couldn’t see the internet revolution coming. Microsoft was challenged and toppled by Google in something of an encore. So, when these companies report their contrasting fortunes on the same day, it makes for a memorable event.
International Business Machines Corp. (NYSE:IBM) lost nearly 8 percent after reporting that its first quarter revenue fell 5.1 percent to $23.4 billion and reports emerged that the company is looking to cut up to 14 percent of its workforce in France. Despite the drop in revenues, the company managed to rationalize its costs and still posted 8 percent growth in earnings per share to $3. However, this fell short of analysts’ expectations of at least $3.05. The company was essentially saved by service segments with pre-tax income in Technology Services growing 7 percent while Business Services pre-tax income jumping 17 percent.
On the contrary, Systems and Technology segment dragged earnings by swinging to a loss of $405 million. Despite a disappointing first quarter, IBM chief executive is still hopeful of meeting a full year operating EPS guidance of $16.7. After the cut, the stock trades at a price earnings ratio of 14.3, which is quite attractive in itself but further drops to 11.2 on a forward basis. The stock is now just 6 odd percent above its 52 week low indicating that current prices are very attractive.
Arch rival Microsoft Corporation (NASDAQ:MSFT) had a better day as its shares were helped by announcements that it expected to lower operating expenses for the full year. Microsoft’s quarterly revenues surged 18 percent to $20.5 billion, although it undershot street expectations of $20.56 billion by a hairline.
However, it was more than made up by a 19 percent increase in profit to $6.06 billion. In earnings per share terms, the 72 cents per share it reported was ahead of the 68 cents per share analysts were expecting. Revenue growth came in pretty strong in the Windows division which got a boost of 23 percent, despite global shipments of personal computers falling 14 percent during the quarter. As a result, the stock recovered smartly in morning trade on Friday after receiving a drubbing last week on concerns that falling personal computer shipments spelt doom for Microsoft.
Google feels heat in mobiles
Google Inc (NASDAQ:GOOG) reported its quarterly profits which came ahead of expectations but cracks in revenue growth are visible, leaving market experts worried if the growth rates are sustainable. Quarterly revenues came in at $14 billion, up 31 percent from last year. However, ad fees per click declined 4 percent on a sequential basis due to a larger share of smartphone ads where variation in rates can be as high as 50 percent.
GAAP net income in the first quarter of 2013 was $3.35 billion, compared to $2.89 billion in the same period last year. Having already gained 12.5 percent so far in the year, the stock appears fairly valued at a forward price earnings ratio of 14.3. A major overhang remains in the form of potential regulatory constraints or fines, especially in Europe.
On a whole, the companies have found their separate operating niches and yet they are compared to each other. Valuations for International Business Machines Corp. (NYSE:IBM) and Microsoft Corporation (NASDAQ:MSFT) are attractive indicative of further growth possible in stock price, but the same cannot be said about Google Inc (NASDAQ:GOOG).