Google and IBM: Revenue and Profit Honks Sounded

April 17, 2014

At my age, I don’t own stocks. I don’t own anything because life in rural Kentucky is simple. The news about Google’s and IBM’s most recent financial results struck me as an MBA discussion group problem.

IBM issued “IBM Reports 2014 First Quarter Results.” What surprises did the $100 billion giant sprint on me? In a nutshell, declining revenues and profits. The bright spots were IBM’s consulting revenues and the company’s cloud computing. Other parts of the business were less robust. Overall IBM faces major challenges in hardware where no easy fix seems evident. Search as manifested in the Watson initiative will have to deliver.

In “Google Inc. Announces First Quarter 2014 Results” made clear that the Google was able to pump up its revenue. I noted the word “great” as Google’s way of describing the last 12 weeks’ financial performance. I noted that profit was down. Explanations included accountants being accountants and acquisitions. For me, the shift to mobile and the now-familiar dependence on one major revenue stream were important. Google may have to do more to keep up the appearance that it is the same super star that burst upon the scene more than a decade ago. Aging pro athletes and Hollywood starlets know the drill well. More effort goes into staying young at an increasingly higher cost. Is search as Google defines it up to the task of paying for personal trainers and plastic surgeons?

Could this be a group activity for tomorrow’s future business leaders? Here’s a question I know I would struggle to address:

What steps would your team recommend to generate more revenue and increase profit over the next quarter? The next nine months? Identify key assumptions for the cost benefit of your recommendations.

Identifying options that address a looming crunch in operational costs is easy. Implementing actions is likely to be more difficult. Pro athletes slow down. Hollywood stars age. Time and cost are challenges in the near term and the future.

Will MBAs and management work their magic? I suppose executives at each company can query their firms’ respective search engines for answers. Google’s information will be sponsored, and IBM’s will be a game show winner.

Stephen E Arnold, April 17, 2014

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