Google & Infosys Experience First Ever Quarterly Income Declines
As if there were need for any more proof of the strength of the global economic recession, both Google and Infosys last week posted their first ever quarterly reduction in earnings since their respective companies were founded. Considering that Infosys was founded in 1981, that is an amazing run of expansion. Google’s income, based largely in internet advertising spending, was reduced significantly as AdSense & AdWords sales declined. Infosys, the Bangalore-based software development and BPO company, has reported not only reductions in corporate IT spending, but is also finding existing clients hesitant to commit to extended long term contracts.
As V. Balakrishnan, Infosys’ CFO states in an interview:
“The environment is challenging and we are seeing that clients are not finalizing their budgets. Last year, most of the clients had finalized their budgets by March. Though it impacted the first quarter earnings, at least we had some kind of a larger visibility on the spending. This year, only some 60 per cent of the clients have finalized their budgets by March. To an extent it is difficult. We have long-term relationship with our clients and to an extent have the visibility of their spending. That is what gave us some confidence on giving the guidance. No doubt, it is a difficult year but our guidance is much more realistic looking at the dynamic market conditions.”1
Following the dismal report from Infosys, Indian IT companies listed on Wall St. lost a collective $500 million USD in market capital. In comparison, Google’s stock rose 5% after their earnings announcements, because the company was able to beat analyst’s expectations by aggressively cutting costs during the downturn and increasing profit margins. Google’s total first quarter earnings are still reported to be $5.51 billion USD. Reports that Google’s share in search may be dropping may be due to the rise of “live” search popularity on Twitter & Facebook.
According to the Washington Post:
“Google said paid clicks, by Web surfers on its text-based search ads, rose 17 percent in the first quarter from a year earlier. But the revenue that Google derives per click appears to have declined, as advertisers reduced the bids they make for keywords in Google’s auction-based advertising system.”
” ‘Consumers are clicking on more ads before they buy. And in response advertisers are only prepared to bid a lower amount for keywords,’ said Sanford Bernstein analyst Jeff Lindsay who estimated that Google’s revenue per click declined 11 percent in the first quarter.”2
Google was founded in 1998, and its ten year expansion has been unprecedented. Infosys, at the same time, has gradually built an entire industry in global BPO, and both companies are widely regarded as the top in their respective fields. The IMF has said that this is the first time in 60 years that the entire global economy has contracted, yet even in such grim times companies like Infosys and Google are doing very well in comparison.
“The International Monetary Fund has joined the chorus of organizations and economic think tanks that have concluded that the Global Economic Crisis is unprecedented in its repercussions. In a report prepared in connection with the G20 Finance Ministers meeting held in London, the IMF offered an economic forecast saturated with gloom. For the first time in 60 years, the IMF report states, the entire global economy will experience a net contraction. The current IMF estimate is negative growth in 2009 of between .5 and 1 %, compared to a forecast of only two months ago still projecting net global growth, though at anemic levels.”3
With China & India’s stock markets both re-entering bull territory last week, and both countries experiencing economic growth of over 5-7% higher than the US & Western Europe, analysts are talking about the decoupling of the global economy. In the IT industry, both Google and Infosys have decoupled from the pack of competition and look to be among the strongest companies to emerge from the global recession.
- http://www.thehindubusinessline.com/2009/04/16/stories/2009041651430300.htm [↩]
- http://www.washingtonpost.com/wp-dyn/content/article/2009/04/17/AR2009041700775_2.html [↩]
- http://www.globaleconomiccrisis.com/blog/archives/227 [↩]
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Add Microsoft to the list…. “Microsoft Corp. said Thursday that declining PC sales hurt revenue, as the software giant reported quarterly sales that fell for the first time in its 23-year history as a public company.”
Source: http://money.cnn.com/2009/04/23/technology/microsoft_earnings/index.htm?postversion=2009042316
Google didn’t have income declines, only revenue decline from the previous quarter. The rise in Google traffic could be from lost yahoo users or new internet users propagating. If it wasn’t for that spike in google usage during the start of 2009 then you defiantly would have seen income drop. I wouldn’t say google is “hurting” from the economic downturn but obviously they have been affected thru less advertisement money flowing in.