Wall Street is a curious place. A number of companies last week and this week reported very strong revenues suggesting that the recession is in fact over. But investors, disappointed that performance wasn’t even stronger, punished their shares perhaps with more aggressive expectations than were justified under the circumstances.
Amazon and eBay are two examples of companies with strong revenues and income where investors sold off the stock. And so is Microsoft.
Redmond reported “record [fiscal] third-quarter revenue of $14.50 billion” with a 35% increase in net income. Investors responded by promptly selling Microsoft shares. Its stock fell about 4.5 percent in after-hours trading.
Microsoft’s revenue and income gains were driven largely by the success of Windows 7. Online ad revenue, the company said, grew 19 percent but the online services division, which houses Bing and advertising, saw a larger loss vs. last year: $713 million vs. $411 million.
During the earnings call Microsoft touted Bing’s growth and the approval of the Yahoo search merger. Bill Koefoed, GM Investor Relations, said the following:
Online advertising revenue grew 19%, primarily driven by search, which outperforms the market. We continue to be enthused with Bing’s momentum, which includes 10 consecutive months of share gains in the U.S. We ended the quarter with U.S. query share of 11.7%, according to comScore, 340 basis points higher than when we launched Bing last May.
The Yahoo search partnership implementation is underway and we’re working toward U.S. completion by the end of this calendar year and global completion by early calendar year 2012.
After Bing starts to see the benefit of Yahoo search traffic in 2011, we’ll see if that boosts online revenues in a meaningful way. In addition the release later this year of Windows (7) Phones will be significant in terms of Microsoft’s mobile outlook, which could uplift Bing if the phones are successful. Separately the KIN social networking phones could also positively affect Bing if they succeed as well.
Bing has a broader strategy and its success in mobile and off the desktop is not tied entirely to the success of Microsoft powered devices.