After seeing the recent performances of Google Inc (NASDAQ:GOOG) and Microsoft Corporation (NASDAQ:MSFT), investors might be misled about the revenue-generating potential of one of these stocks. The companies are actually going in opposite directions, despite what their latest earnings would suggest. The first-quarter numbers are stellar for both businesses, but while the potential results are endless for Google, Microsoft’s “window” of opportunity is closing fast.
Google Inc (NASDAQ:GOOG)’s net profits rose to approximately $3.4 billion during the first quarter of 2013, representing a 16% rise from the corresponding three months last year. Much of that revenue is credited to increasing online advertising. Google’s overall revenue was $14 billion in the quarter, which is about a 40% increase from last year’s first quarter. That is a solid indication that advertisers are trusting Google Inc (NASDAQ:GOOG).
Microsoft Corporation (NASDAQ:MSFT) earned $6 billion during the same period this year, representing a 17% rise from last year’s report. The increase to Microsoft’s stock comes as shock, considering the drowsy reception of the company’s Windows 8, and the decline in international PC sales.
But the rise in revenue can largely be attributed to the company’s increasing role as a software provider, which is an area with few overhead costs. Microsoft Corporation (NASDAQ:MSFT)’s revenue rose 18% up to more than $20 billion, with Windows software contributing $5.7 billion to that amount. The server and tools division added $5 billion, and the entertainment business, which includes the Xbox gaming consoles, contributed another $2.5 billion.
Weak PC market
The main reason to be wary about Microsoft Corporation (NASDAQ:MSFT) is that PC sales have dropped 14% in this year’s first quarter, which is the worst plunge in history. This is an indication that customers prefer the simple touch interfaces in tablet devices. Windows 8 has actually caused a portion of the drop in PC use, says IDC.
Despite the stellar earnings report and a market cap of over $240 billion, Microsoft Corporation (NASDAQ:MSFT) is still the little guy when it comes to tablets and smartphones. In fact, the company is losing market share due to competition from Samsung Electronics (listed on the Korean Stock Exchange) and Apple Inc. (NASDAQ:AAPL).
Both companies have lured people away from PCs to what many consider to be a more convenient way to browse the Internet. While each edition of Apple’s iPhone has been a hit, the company hasn’t appealed to many who can’t afford the price tag of the traditional iPhone model.
Market titans
Samsung and Apple are two titans battling it out over alleged copyright infringements. If Apple Inc. (NASDAQ:AAPL) can stop Samsung from “infringing products,” that bodes well for the stock and could send share prices soaring. The U.S. Court of Appeals recently ruled on tightening copyright laws. This could mean a group of 26 Samsung devices with alleged infringed Apple patents might be banned.
