Last night saw Merrill Lynch announce another massive quarterly loss – the Markets didn’t like that. But Google also revealed its latest earnings, and in their second of the year, profits surged by 35 per cent on last year. Markets really didn’t like that. Shares plunged in both companies.
How Merrill Lynch would love to have Google’s problems. In the quarter just gone losses came in at nearly $5bn, more than double the level analysts had expected. It has now revealed four straight quarters of losses – with total losses so far coming to $19.2bn.
Pause, reconsider that. So far Merrill Lynch has lost $19.2bn. You may recall, recently the IMF predicted total losses from the credit crunch would finally come in at $1 trillion. So, by that standard, Merrill Lynch’s losses are modest – just 2 per cent of total expected losses. Even so, its pretty awful.
Shares fell by 6 per cent in after-hour trading, but don’t be surprised if today sees further falls across the board, as markets digest the lynching, as it were, of Merrill’s expected losses.
Mortgage write-downs came in at 4.8 billion. Other write-downs came to around $5bn, so actually, on a trading basis, the bank made a profit.
John Thain, Merrill’s chairman and chief executive said: “Our core franchise continues to perform well despite the extremely challenging market environment.”
He is right. Strip out the write-downs and the bank is doing quite well. But boy, are the write-downs serious? Talk is that the bank may even sell its stake in BlackRock.
As for Google, it made a quarterly profit of $1.25bn. To give you an idea of how shocking that performance was, it actually enjoyed better profits than that last quarter. Yes, that is right, Google saw a quarter on quarter fall in profits.
Mind you, it was still the second-best quarter ever by the company. A year ago, profits were $925 million, the year before that $721 million and before that $342 million. So, call us old fashioned, but that still seems like pretty heady growth to us.
In any case, the latest figures were hit by stock options costs, that knocked $200 million or so off profits.
Yet, analysts were not impressed. The company has failed to meet expectations now for four quarters in a row. By the way, Google does not make revenue or profit expectations, it lets analysts draw their own conclusions. So it is not Google that has failed to live up to expectations, rather it’s the analysts who made far too lofty projections in the first place.
In fact, revenue was ahead of expectations, it was just that the company was hit by the credit crunch in one curious way. It enjoyed lower interest payments on the money it had on deposit, and in any case has less cash now thanks to the $3.2bn it forked out on ad network DoubleClick,.
In fact, the company itself reckons it may do well out of the credit crunch as users get on the Net and search all the more, looking for that bargain as they try and make ends meet.
Actually, you can make that argument for many Internet companies. One assumes more people will sell goods on eBay, for example. Presumably the same applies to price comparison sites.
But looking forward, Google is engaged in war. It is one of the main players in the great mobile phone battle. It is fighting for a Linux based operating system, which will enable Google to cream up on the advertising. Other major players include Microsoft, Nokia, with its Symbian operating system, and Apple.
To the winner of that war, the spoils will be great indeed.
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