Earnings Showcase Showdown

Every three months, public companies release their performance for the previous three months. Those with an interest, often a vested interest, in the stock market tend to follow these events closely – both the lead up to the actual announcement and the days following the announcement. The rest of us check to see where Google’s stock is every once in a while but can’t recite earnings numbers and stock fluctuations. That’s what this article is for, as it does the leg work, summarizing the performance of the companies that shape the Internet and Internet advertising landscape – Google, Yahoo, and eBay. Together they earned north of four billion dollars in revenue for the first three months of 2006 and more than one billion in profit.

Our last earnings article was published in early February after the big three released their fourth quarter 2005 numbers. Today’s article covers their fourth quarter 2006 numbers, starting with Google. Those with a photographic memory and/or money in the company will remember fourth quarter 2005. They met expectations, which for many works out nicely, but not for the mighty expectation smashing Google monster. A look at their stock will highlight why.

January 31 – 432.66 (earnings announced after the close)
February 1 – 401.78 (up 20 from the day’s lows)
February 2 – 396.04 (heading south…)
February 3 – 381.56 (not promising)
February 6 – 385.10 (is the bleeding done?)
February 7 – 367.92 (apparently, not)
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February 15 – 342.38 (definitely not)
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March 10 – 337.06 (hindsight says, buy all you can right here)
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April 20 – 414.67 (before earnings)
April 21 – 437.51 (booya! But down 13 from the day’s high)
April 26 – 425.97 (still strong, but that 450 number was nice for the two hours it lasted)

As evinced from perusing or plotting the numbers, Google’s stock showed more than a little volatility over the quarter. It spent much of March bouncing around the 300’s, as high as 394 and as low as 337. April saw some calming with the stock hovering between 400 and 420 until Q1 earnings came out on April 21. The stock closed just under 415 on the 20th and opened at just about 450. Interestingly enough, the stock sits just about where it did in middle to late January. It doesn’t feel like it though having fallen 23% during Q1 but rising more than 35% since hitting bottom. Here are the non-stock, figures:
Q4 2005 – $1.92 billion (revenue), $569.6 million (income)
Q1 2006 – $2.25 billion (revenue), $742.7 million (income)

EBay announced its fourth quarter 2005 numbers on January 18, 2006. The stock spent most of January in the middle 40’s.

January 18 – 44.44 (before earnings)
January 19 – 46.77 (keeping up with inflation)
January 20 – 44.97 (short lived gain)
January 23 – 43.70 (how low can she go?)
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February 10 – 39.53 (pretty low)
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March 27 – 37.15 (really low)
April 19 – 40.35 (coming back…before earnings)
April 20 – 36.77 (the street says, rejection)
April 21 – 35.09 (hope you didn’t buy at 44)
April 26 – 34.22 (time to buy?)

Not to be outdone, eBay too showed some impressive volatility. In February, the stock stayed close to 40, going not much below or above. The stock started to dip some in March, hitting 37 towards the tail end. It seemed to find its grounding, clawing its way back up to 40 on April 19 (a 10% gain). The floor dropped out from underneath the stock shortly thereafter. But the company’s Q1 2006 results, released after the closing bell on April 19, had the company feeling Google’s pain several months back. The stock has dropped 15% since April 19, and if it follows the same pattern seen by Google, it might fall to 33. If you count the drop from its January 19th close of 46, the stock now sits almost 27% lower. At 34, the stock is within about 10% of its 52 week low, whereas Google’s 52 week low is 50% away at 210. Here are the revenue and operating income numbers:
Q4 2005 – $1.33 billion (revenue), $322.6 million (income)
Q1 2006 – $1.39 billion (revenue), $370.4 million (income)

Last but not least, in terms of revenue, is directory turned portal turned search and content company Yahoo. Their stock didn’t perform well last year; it went up 3% or so (if memory serves correct). Google’s 200%+ rise only added insult to injury to a company that saw continued growth in 2005. For fourth quarter 2005, Yahoo reported their earnings one day before eBay, on January 17th. The stock looks like this for the past three months:

January 17 – 40.11 (before earnings)
January 18 – 35.18 (and there goes a few hundred million in market cap)
January 20 – 33.74 (why not shed some more)
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February 13 – 32.04 (still going)
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March 13 – 30.15 (like the energizer bunny)
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April 18 – 31.30 (there might be a doctor in the house)
April 19 – 33.54 (it’s a gain…)
April 26 – 33.00 (will it last?)

The last time Yahoo’s stock flirted with 33 took place in October of last year. After beginning January 2005 around 38, the stock proceeded to stink most of the year, flirting with breakeven in June but again retreating until the latter part of last year. From October 2005 through January 17, 2006, the stock rose 21% before giving up 17%. Like eBay, the stock rests within about 10% of its 52 week low, and came with a few points six weeks back in March. Here are Yahoo’s figures:
Q4 2005 – $1.50 billion (revenue), $329.0 million (income)
Q1 2006 – $1.57 billion (revenue), $201.2 million (income)

One quarter to the next increases, e.g. Q1 2006 to Q2 2006 are often expected, but not guaranteed. Each of these companies sees an impact from seasonality; that all grew from the strong holiday season of last year to the first quarter of this year says a lot. As interesting are the changes that occurred between this most recent quarter (January through March) to the same time last year. Take a look at Q1 2005 (operating income in parentheses) and Q1 2006.
Google – 1.26 (442) to 2.26 (743)
eBay – 1.03 (335) to 1.39 (323)
Yahoo -1.17 (247) to 1.57 (201)

Of the three, only Google saw higher income this quarter compared to the same time last year, and look at the increase in both revenue and income. Absolutely astounding, especially considering the company earned 1.21 billion for all 2002…not to mention that they have added 1 billion in revenue for each of the past three years. EBay certainly feels the pressure, not the least of which in their stock price. They made news last week when reports of their looking to form an alliance with MSN and/or Yahoo to fend off Google became public. Yahoo, which should see an increase in traffic and yields from its display ads will have to worry about losing a big chunk of its search traffic in June when its deal with MSN expires. And, what about Google? They grew their share in the search market and improved their brand image this quarter, but that only sets them up, yet again, as the target. All told, this quarter should not lack excitement.