A tale of two companies: Yahoo and Apple

By Pete Southern in LiveWire Economics Blog | October 22, 2008 9:40 |

Yahoo and Apple both reported quarterly earnings on Tuesday (October 21). The results were quite opposite for the tech bell weathers. Yahoo announced a 64 per cent third quarter profit drop and said it was set to let go 1,500 workers in lieu of the struggling economy. Many analysts and investors in the search engine giant have intensified their voicing of anger that the Yahoo board failed to take advantage of a $47.5 billion buyout offer from Microsoft earlier this year.

The ten percent reduction in its payroll is the second mass layoff used by Yahoo in recent months to combat its struggles in a down economy. An internet search marketer, Yahoo has found it difficult to generate strong revenue as marketers have been unable to invest in online advertising in the same capacity. Yahoo’s stock price currently sits just above $12 per share. This is near a 5 ½ year low for the company’s stock.

A company moving in the opposite direction to Yahoo is Apple. Apple reported a 26 per cent fiscal fourth quarter climb Tuesday. Much of its profit success is attributed to the iPhone boom which continues to develop. Apple has introduced many new applications for its iPhone since it marketed last year. The highest version of the all-in-one cell phone technology includes music and video applications and more. The most impressive aspect of the Apple announcement included the fact that its latest version of the iPhone outperformed industry leader BlackBerry, a Research in Motion product.

Despite its successful quarter, Apple leaders were cautious in their outlook for the coming months and quarter. The company does believe it faces some challenges, as do many technology and entertainment makers, because of the slumping US economy. Many Americans are holding tight to their pocket books in the current market and discretionary items, especially higher end technologies often struggle during tough periods. This makes Apple’s third quarter performance all the more impressive.

Apple’s earnings report came after hours on Tuesday and created an immediate reaction from after-hours traders. Apple’s share price had closed down $6.95 during regular hours to just above $91. The stock finished its after-hours trade at $103.61. This means investors drove the price up over $12 following the earnings.

It is interesting to take note of the contradictory earnings from two leading tech companies, like Yahoo and Apple. Yahoo’s earnings highlight the worst of the companies that have been hit hard by the slumping economy. Apple’s success shows that innovative leadership and brand value can still be drivers even when some sectors of the marketplace are dealing with budget issues.

One interesting note form Apple chief Steve Jobs was that he expects the holiday season to be a bit slow for his company. He speculated that rather than turning to a cheaper brand of computer or high-tech gadget, many consumers will simply holding on purchasing these types of items until after the New Year when they can afford them, and the economy might be a bit more stable. This was part of Apple’s cautious guidance in letting the market know to be practical in reacting to the nice fourth quarter profit.

Market Recap

The Dow surged Monday thanks in large part to growing hope that the Bush Administration may put together another economic stimulus package to put more money back in the hands of consumers. This would be another move to help stimulate the slumping economy. The Dow gained 413 points. The NASDAQ and S&P were up 58 and 44. The Dow gave up 231 points Tuesday thanks in large part to news that Yahoo was set to lay off 1,500 employees. This news came after a third quarter profit drop of 64 percent. Apple’s profit climbed 26 percent. The NASDAQ and the S&P were down 73 and 30 points.

Neil Kokemuller
Tuesday, October 21, 2008
9:34 PM EST

Neil Kokemuller is an Associate Professor of Marketing at Des Moines Area Community College in Des Moines, Iowa, USA. He has a MBA from Iowa State University.

Please note: The information provided in this article is intended for informational and entertainment purposes, and not as advice for financial decisions or investments. Actions taken on the basis of the information shared is at the sole risk and discretion of the individual. Currency investment poses significant risk of loss.

Pete Southern About Pete Southern
Pete Southern is an active trader, chartist and writer for market blogs. He is currently technical analysis contributor and admin at this here blog.

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