Microsoft, eBay drag down market

Microsoft and eBay pull down Nasdaq, following their announcements of disappointing earnings. Both bellwethers are among most actively traded Thursday.

Dawn Kawamoto Former Staff writer, CNET News
Dawn Kawamoto covered enterprise security and financial news relating to technology for CNET News.
Dawn Kawamoto
3 min read

Update at 9:15 a.m. PST: Prices of companies' shares and market activity updated.
Update at 8:55 a.m. PST: Research from eBay analysts added.
Correction at 6:33 a.m. PST: Microsoft's year-over-year revenue rose 2 percent.

Bellwether tech stocks Microsoft and eBay pulled down the broader market Thursday, after they both reported quarterly earnings that apparently gave investors an unpleasant jolt.

Their results smothered hopes for a turnaround following Apple's impressive quarterly results and those of IBM.

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By 9:15 a.m. PST, Microsoft shares had fallen 10 percent to $17.40. Earlier in the day, the company reported fiscal second-quarter earnings that missed analysts' expectations.

eBay shares, meanwhile, were down 12.5 percent to $11.62. After market close Wednesday, the company reported weaker-than-expected fourth-quarter revenue and lowered its outlook for the current quarter.

Both bellwether tech stocks were among the most actively traded on Nasdaq, which was down 3.75 percent to 1,450. The Dow Jones Industrial Average was down 2.9 percent to 7,989.

Apple, by contrast, was one of the few most actively traded stocks on Nasdaq that was in the black, up 5.9 percent to $87.70.

Microsoft plans to cut 5,000 jobs over the next 18 months, starting by immediately slicing 1,400. Revenue for the quarter rose 2 percent year over year to $16.6 billion--$500 million lower than Wall Street expectations, according to Thomson Reuters. However, Microsoft CEO Steve Ballmer said in an e-mail to employees Thursday that revenue was $900 million lower than expected.

Net income fell 11 percent to $4.17 billion, or 47 cents a share, in the quarter, compared with a year ago. Analysts were expecting Microsoft to generate earnings of 49 cents a share, according to Thomson Reuters.

Microsoft has a reputation of offering conservative earnings estimates to Wall Street and of rarely missing its numbers. So Thursday's announcement was particularly rare.

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Microsoft further added to the uncertainty of the market by stating: "Due to the volatility of market conditions, going forward, Microsoft is no longer able to offer quantitative revenue and (earnings per share) guidance for the balance of this fiscal year."

The company's fiscal second quarter ended December 31, after a particularly bad holiday-shopping season.

Microsoft was not alone in its suffering. eBay posted a 7 percent decline in fourth-quarter revenue, and analysts warned investors that the situation may not improve for the e-commerce giant in the near-term.

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Ben Schachter, a UBS Securities analyst, said in a research note Thursday:

We believe eBay will get cheaper yet again. Last night's results were weak across the board and we see no bottom to fundamentals in the near-term....For years we've been saying that until eBay's core business growth stabilizes or re-accelerates, we'd find it hard to recommend shares. Now, we are slightly changing our position to state that, given the valuation, we don't need to see the core stabilize, but we need some visibility as to when that might happen. Unfortunately, that is still unclear. That said, we don't see meaningful downside to the stock as the company should be able to manage costs reasonably well in 2009 to mitigate the impact to margins.

Schachter maintains a "neutral" rating on the stock.

Jeffrey Lindsay, an analyst with Sanford C. Bernstein, stated in a research note that eBay's lowered outlook for the current quarter is the "real story."

eBay dropped its first-quarter guidance to 32 cents to 34 cents a share, which translates into approximately a 21 percent decline from its performance a year ago.