Microsoft, Amazon.com Stocks Fall After Earnings Misses
Attendees walk past the Microsoft Corp. booth during the 2010 International Consumer Electronics Show (CES) in Las Vegas, Nevada, on Jan. 8, 2010. Photographer: Keyur Khamar/Bloomberg
April 23 (Bloomberg) -- Brendan Barnicle, an analyst at Pacific Crest Securities, talks with Bloomberg's Susan Li from Portland, Oregon, about Microsoft Corp.'s sales. Microsoft, the world's largest software maker, reported third-quarter revenue that missed analysts’ most optimistic predictions, a sign that corporate customers may be putting off computer buying. (Source: Bloomberg)
April 23 (Bloomberg) -- Mark Mahaney, managing director at Citigroup Global Markets Inc., talks with Bloomberg’s Deirdre Bolton about the need for Amazon.com Inc. to lower the price of its Kindle digital reader. Mahaney also discusses Amazon's second-quarter forecast and the impact on its stock price. (Source: Bloomberg)
April 23 (Bloomberg) -- Peter Klein, chief financial officer of Microsoft Corp., talks with Bloomberg’s Margaret Brennan about increased business spending on personal computers and the company’s fiscal third-quarter earnings. Microsoft, the world’s largest software maker, said sales for the period rose 6.3 percent to $14.5 billion, missing the most optimistic revenue estimates. (Source: Bloomberg)
Microsoft Corp. and Amazon.com Inc. fell after releasing earnings reports that showed a rebound in technology spending by companies and online buying by consumers is less robust than analysts had predicted.
Microsoft, the world’s largest software maker, said third- quarter sales rose 6.3 percent to $14.5 billion, missing the most optimistic revenue estimates. Amazon.com, the biggest online retailer, said operating income this quarter may be as low as $220 million, compared with $322.2 million, the average prediction of analysts surveyed by Bloomberg.
While Microsoft and Amazon.com had rising sales and profit last quarter, neither lived up to analysts’ most bullish predictions. Optimism rose last week after Intel Corp. forecast record profit margins in 2010, indicating that a revival in computer demand is gathering steam. Results from Apple Inc. and Best Buy Co. this week reflected robust consumer purchasing.
“With technology in general and Microsoft in particular, you’re going to get this issue where it’s not good enough or it’s already in the stock and it sells off a little bit,” said Dave Stepherson, a fund manager at Hardesty Capital Management in Baltimore. Hardesty manages $700 million in assets, including Microsoft shares. “You’ve had a lot of momentum in technology stocks.”
Shares Decline
Microsoft, based in Redmond, Washington, fell 3.6 percent to $30.27 in extended trading after the report. The shares had risen 6 cents to $31.39 on the Nasdaq Stock Market yesterday. Amazon.com, based in Seattle, dropped 5.9 percent to $141.30 after closing at $150.09.
Amazon stock traded in Germany fell 4.9 percent to $142.70 as of 10:09 a.m. in Frankfurt, while Microsoft declined 3.2 percent to $30.40 from yesterday’s Nasdaq closing price of $31.39.
Third-quarter net income at Microsoft rose 35 percent to $4.01 billion, or 45 cents a share, beating the average forecast of 42 cents in a Bloomberg survey of analysts. Sales exceeded the $14.4 billion average in the survey, reflecting rising demand for Windows 7, the latest version of Microsoft’s flagship operating system.
Still, investors were expecting more, Stepherson said. For the second straight quarter, much of Microsoft’s strength came from consumers, while business spending hasn’t rebounded with vigor. Sales of Office and server software missed estimates at Goldman Sachs Group Inc. and UBS AG.
Unearned revenue, a measure of multiyear contracts, was $12.3 billion. Analysts’ average estimate was $12.8 billion, according to Katherine Egbert, an analyst at Jefferies & Co.
The numbers suggest corporate customers are holding off on big orders that stretch over many years.
‘Really Poor’
“The deferred revenue was really poor,” said Brent Thill, an analyst with UBS AG in San Francisco. “Microsoft is one of the last companies in technology to say enterprise spending is turning. Everyone thought they’d put up better growth.”
Amazon.com said operating income will be $220 million to $320 million, below the average estimate in the Bloomberg survey. The company is struggling to extract favorable pricing from its suppliers who, with improving demand, don’t have to offer as many discounts, said Colin Gillis, an analyst at BGC Financial LP in New York.
As more consumers snap up digital books and other media -- buying fewer of the physical products that have long been Amazon.com’s mainstay -- the company faces increased competition from rivals such as Apple, Gillis said.
“Amazon is not likely to experience the same profitability and leadership position in digital media that it enjoys selling physical books, movies and music,” Gillis said.
Earlier Gains
First-quarter sales of $7.13 billion and profit of $299 million, or 66 cents a share, beat analysts’ estimates. The company’s shares have climbed 90 percent in the past year, double the gain by the Standard & Poor’s 500 Index.
Amazon.com and Microsoft are not the only companies whose quarterly earnings reports compared poorly to those of Intel and Apple. Google Inc., the biggest seller of Internet advertising, posted its biggest drop since December 2008 last week after reporting profit that missed the highest analyst estimates. “The leading Internet stocks so far all reported fairly good results and guidance and still saw their stocks drop,” said Fred Moran, an analyst at Benchmark Co. in Boca Raton, Florida. “The stock market expectations for where technology stocks should trade may have temporarily gotten ahead of themselves.”
To contact the reporters on this story: Dina Bass in Seattle at dbass2@bloomberg.net; Joseph Galante in San Francisco at jgalante3@bloomberg.net
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