Google and Microsoft shares in fresh slump

Shares in Google and Microsoft plummeted yesterday as both posted earnings that disappointed analysts.

At one point, Google owner Alphabet’s share price was down by 5.6%, while Microsoft had fallen by 7.25%.

Alphabet missed Wall Street targets for first-quarter profit and revenue on Thursday as it spent more money to build traffic for its mobile advertising services. The results were also hit by the strong dollar.

Alphabet’s consolidated revenue rose to $20.26bn (€18.04bn) from $17.26bn, slightly below the $20.37bn analyst consensus.

Chief financial officer Ruth Porat said payments to other websites, known as traffic acquisition costs (TAC), totalled $3.8bn and accounted for 21% of advertising revenues.

The percentage of ad revenues spent on TAC grew 13% year-over-year. 

That reflects the ongoing shift to mobile advertising and the growing importance of programmatic advertising, in which ads are bought, sold and displayed by automated systems. Google’s advertising revenue rose 16.2% to $18.02bn, while the number of ads, or paid clicks, rose 29%, the company said.

Microsoft also reported results that fell short of analysts’ expectations .

Two of Microsoft’s three major businesses showed lower operating profits, led by what Microsoft calls its intelligent cloud division, which includes its Azure cloud-services business as well as traditional server software.

Despite revenue at Azure more than doubling, revenue in the division grew just 3%.

“We would have liked to have seen 7% to 9% growth,” Dan Morgan, a portfolio manager at Synovus Trust who holds Microsoft shares, said of intelligent cloud revenue. 

“We’re trying to validate this story that Microsoft is truly becoming a cloud company, and they’re not going to be relying on the desktop computer.”

Microsoft executives said that the shortfalls in the intelligent cloud business were due to pressure on products that were tangential to the main cloud push, such as server software, which mollified some investors.

“Microsoft’s cloud business is gaining sales and momentum in the marketplace, so I am willing to give them the benefit of the doubt on this quarter’s missed external expectations,” said Matt McIlwain, a venture capitalist at Madrona Venture Group who watches Microsoft closely.

“But, the combined top line and bottom line miss will raise the stakes for their final quarter of the 2016 fiscal year.”

Revenue at the software giant fell to $20.53bn from $21.73bn. The company’s net income in the third quarter to the of March fell to $3.76bn, from $4.99bn a year earlier. 

The company in part blamed a higher-than-expected tax rate for the lower net income.

Chief executive Satya Nadella has focused on developing the company’s cloud business with his “mobile first, cloud first” strategy, since taking over in early 2014.



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