Apple Inc. (AAPL)’s Earnings Are the Last Line of Defense for Technology Stocks

I believe that the company’s weakness in performance is going to be temporary because the shift to a subscription model with Office 365 should have a temporary effect on earnings. Likewise, the weakness from Windows 8 could be offset once Microsoft ends its support for Windows XP. Analysts expect the company to grow earnings by 8.2% in the next fiscal year.

Google Inc (NASDAQ:GOOG) struggles to sustain revenue growth

Source: Statista

I have to admit I wasn’t terribly surprised with Google Inc (NASDAQ:GOOG)‘s  declining revenue growth. The company’s revenue growth rate was partially inflated in 2012 by its acquisition of Motorola Mobility. The year-over-year comparisons aren’t exactly accurate. Due to the growth of mobile, the company also experienced difficulties with costs-per-clicks (Google AdSense), which declined by around 6% year-over-year. The decreasing costs-per-clicks weighed heavily on the company’s operating margin, which fell from 31% to 26% year-over-year.

Investors and analysts were somewhat willing to pardon the weaknesses in display advertising because of Google Inc (NASDAQ:GOOG)’s growth in its Android Play Store business, which was up by 138% year-over-year.

The decline in display advertising caused net income to fall year-over-year. As a result, analysts on a consensus basis projected earnings growth of 12% for the full fiscal year.

Conclusion

It seems that Apple is the shining beacon of hope amongst the technology stalwarts. If Apple Inc. (NASDAQ:AAPL)’s earnings guidance fails to come through, it can indicate that growth expectations were too high for the tech sector as a whole.

Both Google Inc (NASDAQ:GOOG) and Microsoft Corporation (NASDAQ:MSFT) provided decent–if not awful–guidance, so it is up to Apple to change the prevailing market sentiment in technology stocks. Let’s not forget that in the next quarter Apple Inc. (NASDAQ:AAPL) is set to release its next generation iPhone device. So if guidance stinks, kiss goodbye the technology rally.

Alexander Cho has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple Inc. (NASDAQ:AAPL), Google Inc (NASDAQ:GOOG), and Microsoft Corporation (NASDAQ:MSFT).

The article Apple’s Earnings Are the Last Line of Defense for Technology Stocks originally appeared on Fool.com.

Alexander is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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