BY: Kenyon Scales
Last week was an exciting week that healed a smorgasbord of news stories. Many people focused on the election results and President Obama’s re-election victory, while others honed onto the days shortly after the election, when the U.S. equity markets plunged down roughly 4% with the S&P 500 down 2.42% for the week on mixed concerns that the fiscal cliff will punch the U.S. economy in the face with its automatic tax increases and government spending cuts combined with the re-installment of European growth worries by European Central Bank President Mario Draghi last Thursday. Amongst all of the news headlines, the buzz around the technology sector may have been lost in all places but our M.I.S. class.
Just days ago, we talked about the seemingly unlimited ways that Google has found its usefulness in our education, businesses, and lives. Professor Oscar Sistrunk has mentioned, many time in class, about how to popularize your websites and businesses through the use of AdWords and AdSence. The uses appear unlimited. The cost looks cheap. The demand seems limitless. The profitability… infinite? Not according to Google’s most recent quarterly earnings report. WSJ Summary Video:
Google, a technology company that generates 96% of its revenue from advertisements (see illustrative revenue breakdown: http://www.wordstream.com/articles/google-earnings), accidentally pre-released its third-quarter earnings on October 18th, instantly plummeting the stock down 9% (from $754 to $657). The sell-off was due to disappointing numbers of lower than expected net revenues ($11.86 Bn est. vs. $11.33 Bn), EPS ($10.65 est. vs. $9.03), average cost advertisers paid Google per click (down 15% from a year ago), and the 20% drop in over all profits.
The question people are asking now is: How fast is the switch to “mobile” and “tablet” really happening? The drop in revenue was due in large part to more people shifting to mobile devices, driving the price of advertisements down. This same question may also be what’s creating negative sentiment around the future profitability of Zynga and Facebook (See FB & ZYNGA charts below).
We may be entering an age where not only desktops, but also laptops are becoming obsolete. (See: http://www.gartner.com/it/page.jsp?id=2079015). What this means for the future of the majority of the technology sector is unknown. However, what is clear is that the companies that survive in the next decade will be the ones who rapidly innovate their products, (whether they be advertisements, hardware manufacturing, or software) towards mobile devices.
I like this post. I find it interesting that the Facebook stock never regained some of its early valuation. After its peak of 43 on the first day of sell it has never gotten close to its IPO of 38 dollars. As Facebook's stock has done horrible so too has Zynga. I am not sure either one of these companies have convinced investors of their profitability.
ReplyDelete