Earnings Duel: Google vs. Microsoft (MSFT, GOOG, YHOO)

Today is going to be a challenging earnings day, and it is no coincidence that Google (NASDAQ:GOOG) is reporting earnings simultaneously with Microsoft (NASDAQ:MSFT).  Google has already trumped Yahoo! (NASDAQ:YHOO) as we saw earlier this week, and now it can go after software behemoth Microsoft.  Since the close of 2006, Microsoft shares are up only about 5% and Google shares are up about 19%.  Microsoft’s average price target from analysts is close to $35.00 and Google’s average price target from analaysts is close to $600.00.

The truth is that there are too many areas and sectors each is in to try competing in all of them.  Google took the search lead long ago, but now it has the focus online software and services that can nibble at Microsoft’s Office software sales.  Google has no operating system it sells in boxes in stores.  Microsoft paid a huge sum to acquire aQuantive (NASDAQ:AQNT) after Google acquired DoubleClick.  Microsoft has Explorer.  The other thing Microsoft has is direct ownership in many technology, communications, and media companies.  Microsoft has Xbox, Vista, and enterprise software solutions.  You can banter back and forth all day as far as which company will win in which arena, which is easier to work with, where they really compete, and more.  The world is a giant neighborhood and there is room for both giants.

Microsoft is expected to post earnings of $0.39 and $13.27 Billion in revenues.  Next quarter is expected to be $1.39 EPS on $13.5 Billion revenues.  The company may also readdress its annual JUN-2008 Fiscal projections, and the estimates there are roughly $1.71 EPS and $57 Billion in revenues.

Google is expected to post $3.59 EPS on revenues of $2.68 Billion.  Just for inference, the current expectation for Q3 is $3.76 EPS on $2.87 Billion revenues.  The problem with even making forward numbers is that Google does not offer guidance, and it has been a serial-exceeder compared to EPS numbers.  Remember you have to back out the TAC (traffic acquisition costs) to get to the true revenue number that Wall Street cares about.

While Wall Street considers these companies arch-rivals, this is somewhat arguable now in today’s world if you consider how these are classified even if they are going after each other.  Google is where growth investors flock, and now Microsoft is held by value and income investors who view the company as an earnings play.  Microsoft is buying back and retiring shares while it is still making acquisitions when it sees fit, and Google will probably be taking the views for quite some time that they can spend cash to buy companies like YouTube and DoubleClick rather than spend cash on its own shares.

The good news is that companies did not insist on holding each conference call at the exact same time.  Google’s webcast is being held at 4:30 EST (1:30 Pacific).  Here is the link for the Microsoft webcast, which starts at 5:30 PM EST (2:30 Pacific).

Jon C. Ogg
July 19, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.