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.
And profits at Apple Inc. (NASDAQ:AAPL) could soar even higher if rumors reported recently on various online news organizations such as CNET and Yahoo! Inc. (NASDAQ:YHOO) News prove true. The organizations say Apple is working on a model that is affordable to the low-income consumer. Essentially, the reports state, the phone would have a plastic backing. Apple, however, hasn’t confirmed that it is working on such a device. But if the plastic version materializes, Apple could be taking even more market share away from Microsoft Corporation (NASDAQ:MSFT). And the tug-of-war continues.
Smooth sailing
Meanwhile, everything looks smooths sailing for Google Inc (NASDAQ:GOOG). With nearly no competition to be seen, the company is essentially swimming alone in a sea of money. As an increasing number of businesses move online, they will want advertisements directing people to their websites. While this has long been an opportunity for businesses throughout the world, many are only beginning to understand the potential of connecting with Internet surfers.
At the same time, these firms are becoming more comfortable with doing business online. And as firms realize the value of connecting with clients via social networking sites, they will gradually want more online advertising promoting their products and services. It’s just a matter of time before it is unheard of for a company to not be fully integrated online, and Google Inc (NASDAQ:GOOG) will be there to cash in.
Phillip Woolgar has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple, Google, and Microsoft. Phillip is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Google and Microsoft Going in Opposite Directions originally appeared on Fool.com and is written by Phillip Woolgar.
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