Today: Two of Silicon Valley's 15 largest technology companies announce earnings, with investors reacting in opposite ways. Also: Yahoo leads another tech rebound on Wall Street.
The Lead: Google and Sandisk continue Silicon Valley earnings parade
The second day of Silicon Valley's crucial earnings season was more mixed than Tuesday's roundly positive returns, as Google dropped in after-hours trading following a report that missed analyst expectations while Sandisk jumped after showing off larger profits than expected.
Google reported first-quarter net income of $3.45 billion, or $5.04 a share, on sales of $15.4 billion, a gain of 3 percent for profits and 19 percent for revenues from the same quarter a year ago. Those increases are nothing new for Google -- which amassed a 20.3 percent gain in profits and boosted revenues 16.4 percent in 2013, pushing the Mountain View company past Intel and into the No. 3 spot on the SV150 -- but they weren't enough to match outside projections. Analysts were expecting earnings of $5.28 a share on revenues of $15.5 billion, according to Thomson Reuters.
It was the first earnings report for the search giant since the company's stock split, which created a third, nonvoting class of Google shares. The two publicly traded classes of Google stock both declined in late trading after the report was released: Class A shares, which have voting power and trade under the ticker symbol GOOGL, fell lower than $547 after closing with a 2.8 percent gain at $563.90; and Class C shares, with no voting power and trading under the ticker symbol GOOG, fell to less than $542 after moving 3.8 percent higher to $556.54 in regular trading.
Of concern to analysts beyond the miss on profits was the declining price Google was paid every time a user clicks an ad the Internet company serves: While the number of clicks on Google ads rose 26 percent in the quarter, the average "cost per click," fell 9 percent year over year. S&P Capital IQ analyst Scott Kessler told Bloomberg News that the impetus for that change was the increasing number of smartphone users with which Google is interacting, saying, "Mobile is perceived as the single biggest risk over the near-term."
"Mobile is definitely helping Google and many others in the number of volume-related metrics, but mobile has also had a notable negative impact on pricing," Kessler noted.
Profit margin also scared some observers, with Pivotal Research Group analyst Brian Wieser telling the Wall Street Journal, "The top line was pretty good, but the margin compression probably disappointed the market."
Wieser also said that some of Google's moonshots, such as its Project Loon effort to expand Internet access, will continue to have an effect on its margins.
"Balloons over New Zealand will also have lower profit margins," he noted.
Google admitted that its new initiatives created a drag on its results, with Chief Financial Officer Patrick Pichette explaining in Wednesday's conference call that the $3.2 billion acquisition of Nest Labs hurt, saying "there's just a lot of stuff that flows through the accounting" after such a deal.
Better news for Silicon Valley arrived from the other side of the Dumbarton Bridge, where Milpitas-based Sandisk continued to blow expectations out of the water with its financial performance. The flash-memory company, second only to Apple in the SV150's Consumer Technology sector, reported net income of $269 million, or $1.14 a share, on revenues of $1.51 billion. After accounting for one-time charges, Sandisk reported profits of $1.44 a share, easily topping analysts' projections of $1.26, and revenues also came in higher than projections, which CEO Sanjay Mehrotra credited to strong sales of solid state drives and retail products.
"We are excited by the momentum we are building in our business as we continue to execute on our growth initiatives," Mehrotra said in Wednesday's announcement.
The positive momentum continues for Sandisk, which boosted revenues by more than $1 billion and more than doubled its net income in 2013 to land at No. 15 on the SV150. Shares topped $80 in late trading after gaining 0.7 percent to $75.85 in the regular session.
SV150 market report: Tech stocks continue bounceback, led by Yahoo
Wall Street continued to rebound from a weak start to the second quarter Wednesday, and technology stocks led the way as Yahoo jumped following its Tuesday earnings report.
Yahoo gained 6.3 percent to $36.35 Wednesday after showing off its first increase in display advertising revenues since 2011 in a quarterly report. While the Sunnyvale company's gains could signify movement in CEO Marissa Mayer's attempt to boost sagging ad sales, analysts were more excited about the growth at Alibaba, the e-commerce giant in which Yahoo owns a 24 percent stake. "Holy Alibaba" was Bernstein Research analyst Carlos Kirjner's summation of the report, which detailed a 66 percent gain in the Chinese company's revenues, which dwarf Yahoo's. Reuters reported Wednesday that Alibaba will file a prospectus for its IPO as early as next week, stoking excitement even more. At least two analysts raised their ratings of Yahoo in response Wednesday morning, and others increased price targets to reflect larger valuations for Alibaba. Gabelli analyst Brett Harris suggested a "Buy" for Yahoo, noting Alibaba's growth but also praising Yahoo, writing, "Yahoo's display business seems to have finally turned a corner."
Intel also advanced after announcing earnings Tuesday, hitting a new 52-week high of $27.24 before closing with a 0.6 percent gain at $26.93 as analysts debated the Santa Clara chipmaker's future. Apple added 0.2 percent to $519.01 after Bernstein Research analyst Toni Sacconaghi predicted the Cupertino company would add another $30 billion to its stock-repurchase plan after next week's earnings report. Facebook moved 1.1 percent higher to $59.72 after CEO Mark Zuckerberg preached patience in an interview with the New York Times, and rival Twitter reeled back from Tuesday's huge gain with a 2.4 percent descent to $44.42. SolarCity jumped 5 percent to $56.11 after CEO Lyndon Rive wrote in a blog post that he wants to work closer with utilities, while SolarCity Chairman Elon Musk's other Silicon Valley company, Tesla Motors, gained 2.7 percent but couldn't get back above $200, closing at $199.11. Netflix rose 1.6 percent to $331.41 while reportedly preparing to launch in Germany, and Pandora Media gained 4.4 percent to $27.34.
Up: Yahoo, SolarCity, Pandora, Yelp, Google, Tesla, Zynga, Gilead, Netflix, Adobe, eBay, Salesforce, Facebook, Oracle
Down: Twitter, NetApp, AMD, Symantec, Workday
The SV150 index of Silicon Valley's largest tech companies: Up 12.19, or 0.9 percent, to 1,366.27
The tech-heavy Nasdaq composite index: Up 52.06, or 1.29 percent, to 4,086.23
The blue chip Dow Jones industrial average: Up 162.29, or 1 percent, to 16,424.85
And the widely watched Standard & Poor's 500 index: Up 19.33, or 1.05 percent, to 1,862.31
Check in weekday afternoons for the 60-Second Business Break, a summary of news from Mercury News staff writers, The Associated Press, Bloomberg News and other wire services. Contact Jeremy C. Owens at 408-920-5876; follow him at Twitter.com/jowens510.