Google Misses, IBM Meets - Both Stocks Dive - Analyst Blog

Two more big names in technology reported earnings after the bell Wednesday: Google (GOOGL) and IBM IBM each posted lighter sales than expected in their fiscal 1st quarters. Google reported earnings of $5.33 per share (including traffic acquisition costs), a disappointing 17.6% negative surprise, while IBM came in exactly even at $2.54 per share for the quarter.

Google, in particular, has lots of moving parts these days, and many of these are reflected in what we are seeing in the earnings report. Paid clicks are up 26% (some analysts expected this number to be higher) while cost per click (CPC) fell 9%. Much of this stems from Google's increased business on mobile platforms, which command lower ad rates, though this figure improved sequentially from 11% last quarter.

When considering the big picture about Google, however, no one is too concerned about a modest sales or earnings miss in the near-term (well, not "no one" -- late traders are taking the stock behind the woodshed right now), especially while the company remains in the middle of a huge investment phase where its main consideration is the expansion of its user base. Like Facebook FB, Google seeks to track consumer habits ubiquitously and accurately; it is this motivation that's behind Google's $3.2 billion acquisition of home safety and thermostat firm Nest, among other things.

Harder to gauge is the long-term impact of other pet projects Google has been tinkering with. Of course we all know about Google Glass -- in fact, we've begun to see extensive usage of this product already -- and the self-driving cars Google is developing. Its latest purchase is drone-maker Titan Aerospace, a deal so new there's not even an official dollar figure attached to it yet. But at least the aim here is to increase connectivity in remote areas; again, we see Facebook pursuing the same type of thing.

IBM's business is, fittingly, a bit more old school than that: restructuring its operations to face modern challenges and selling off non-core businesses. We've seen this recently with the pending deal to move their x86 server business for roughly $1 billion, and jettisoning off its Customer Care biz for around half a billion. Like we saw with Intel INTC yesterday, the older, PC-based, enterprise-heavy tech firms of yesteryear are modernizing and streamlining at a recognizable pace, but it's going to take time.

Google shares have sold off more than 5% in the after-market. And while the company is still up around 40% year-over-year, GOOGL is now officially down year-to-date. IBM is also down big in the after-market, and is falling to about break-even since the first of the year.

While neither produced the good news investors hoped for, neither did either company perform abysmally. Perhaps they're simply on the early side of an overall correction after hefty gains in the market overall during regular Wednesday trading.