Wall Street Beat: Earnings, IPOs Highlight Tech Strength
Strong earnings from Dell and Salesforce.com, a positive report on online ad spending and two Internet IPOs this week highlighted underlying strength in the tech sector despite worries about the economy.
The Dell and Salesforce results may assuage concerns aroused by Cisco, which -- along with worries about European sovereign debt -- put the brakes on a tech-led market rally that began in September. But the earnings news was not enough to push markets back to the annual highs achieved earlier this month.
Cisco last week announced solid results for the three-month period ending Oct. 30, but forecast a sales increase of 3 percent to 5 percent for the current quarter -- well below its oft-stated, long-term annual goal of 12 percent to 17 percent growth. The main culprit behind the slower growth is a decline in government spending worldwide, but Cisco is in so many businesses that it sparked concerns of a general slowdown in tech sales.
Salesforce, however, reinforced positive earnings news reported over the past two months by enterprise vendors like Oracle, IBM and Microsoft. Salesforce, which offers cloud-based CRM (customer relationship management) applications and software infrastructure to businesses, on Thursday reported a 30 percent, year-over-year increase in sales, to US$429 million. The company also raised its sales outlook for the year and issued early guidance for 2012.
"After taking a decade to achieve our first billion dollar year in fiscal 2009, we believe that our strong growth this year will allow us to deliver approximately $2 billion in revenue in fiscal 2012, making Salesforce.com the first cloud computing company to achieve that milestone," Salesforce CEO Marc Benioff said in a statement.
Dell also put the spotlight on corporate sales when it announced Thursday a 19 percent year-over-year increase in quarterly revenue, to $15.4 billion, and a 144 percent jump in profit, to $822 million.
The company was hit earlier this year with a $100 million government fine for improperly reporting earnings from 2003 to 2007, and in September settled a private lawsuit involving allegations that from 2003 to 2005 it hid PC defects from a wide variety of customers. But Dell says it has new accounting and quality control procedures in place and that a refresh of corporate PCs has juiced sales.
Dell said large-enterprise revenue for October was up 27 percent year-over-year. In its earnings statement, the company said that it "expects to see continued strength from the ongoing client refresh among large corporate accounts and strong growth in enterprise products and services."
A positive online spending report and two IPO filings, meanwhile, suggest brighter days ahead for Internet businesses. U.S. Internet advertising revenue hit a record $6.4 billion in the third quarter, according to a survey sponsored by the Interactive Advertising Bureau (IAB) and conducted by PricewaterhouseCoopers (PwC). That was a 17 percent increase from the same period in 2009, when the country was just emerging from the recession.
"Advertisers are shifting more of their brand messaging online, accounting for this welcome surge in a difficult economy," said David Silverman, a partner at PwC, in the report, issued Wednesday.
On Wednesday, online travel site Kayak filed for an IPO, saying it hoped to raise $50 million. In its SEC filing, Kayak said that for the quarter ended Sept. 30, it generated $48 million in sales, up by 80 percent year over year.
Kayak makes money from referrals to travel suppliers and from advertising. It faces a planned $700 million Google acquisition of airfare search software maker ITA Software, which supplies applications for Kayak and other sites. Kayak and other travel sites have asked the federal government to stop the acquisition.
On Monday, China's largest video sharing site, Youku, filed for an IPO in the U.S., saying it hoped to generate $150 million. A week earlier, its national rival, Toudou, also filed for a U.S. IPO, seeking $120 million. China's online video audience is growing, and meanwhile U.S. sites like YouTube and Hulu are either blocked or do not stream video to China.
In the first three quarters of the year, capital raised in the U.S. IPO market totaled $14.1 billion from 99 IPOs, compared with 34 offerings that raised $8.1 billion during the first three quarters of 2009, according to PwC.
"The trend of the year-to-date statistics for both volume and value are a clear indication of a strengthening IPO
market," wrote Scott Gehsmann in a PwC report. International IPOs indicate a growing confidence in U.S. capital markets. Chinese companies accounted for 19 IPOs, or 19 percent of the volume, totaling $1.3 billion in proceeds thus far this year.
Friday morning, Salesforce shares jumped by $17.24 to trade at $133.01 and Dell shares climbed by $0.14 to $13.80. But the earnings news and vote of confidence in U.S. markets by both U.S. and Chinese Internet companies were not apparently enough to offset general economic worries. The tech-heavy Nasdaq was trading down by 8 points, to 2508, and the broader Dow was down 21 points to 11,159.
News about Irish sovereign debt and moves by China to curb lending in order to fight inflation put a damper on trading this week. A strong earnings report Monday from Hewlett-Packard, the largest IT vendor in the world, could help reignite confidence in the ability of vendors to increase sales even as governments cut spending.