Meanwhile, In Techland, Microsoft and Google Disappoint

Google and Microsoft both disappointed investors with weaker than expected earnings.  Google's earnings missed analysts' estimates, although profit rose to $1.25 billion from $925.1 million from the prior year.  Excluding some items, Google's earnings were $4.63 a share.  The stock is taking a bit of a beating today, essentially reversing the gains it took the last time Google reported earnings that surprised to the upside.  The company admitted that a pullback in the economy was affecting the rate of "paid clicks" on search advertisements that generate revenue.  The paid-click rate decreased 1% from the previous quarter but grew 19% from the same period a year earlier.  Clearly, the stock is slumping because investors expect surprises to the upside from Google, something the company has been able to deliver consistently.  The perverse logic of today's market indicates that it is better to lose $2.5 billion when investors are expecting losses of $5 billion, rather than make $1.25 billion when investors were expecting profits of $1.26 billion.    

Microsoft, on the other hand, posted profits of $4.3 billion, a 42% increase from the prior year's second-quarter on revenues of $15.8 billion, an 18% increase from the previous year.  Because Microsoft missed estimates by a penny and issued a weak outlook, the stock is down 5%.  While we're on the topic of Microsoft, I'm going to weight in on the Microsoft/Yahoo kerfuffle.  Back when every analyst in America was going on and on about how Microsoft desperately needed to pay upwards of $37 a share for Yahoo, I wrote a skeptical piece.  It was very hard for me to believe that Microsoft did not have the upper hand in negotiations.  After all, Yahoo was trading at $18 a share before Microsoft launched its initial bid that caused Yahoo's stock to rally to $28.  In the interim, talks have fallen apart, resumed, fallen apart again, resumed again,  and fallen apart....again.  So where do they stand now?  Microsoft wants Yahoo's search business, but it has made it perfectly clear that it is not going to pay a penny more than it believes the business is worth.  Yahoo's board is now facing a major uphill battle in an attempt to convince its shareholders that it can extract more value independently.  The market doesn't seem to believe that Yahoo's current board can organically grow the business, as the stock has slumped back down into the low $20's since Microsoft withdrew its bid.  Microsoft's latest blow came when it said it is no longer going to engage in negotiations with Yahoo's current board.  I believe that Yahoo's board will be given the boot by shareholders and Microsoft will claim its prize.  Microsoft may even win Yahoo (either in part or in whole) at a lower price than it originally anticipated.  Why?  Because we're in a bear market, Microsoft has cash and nobody else can afford to offer a counter.  Call me crazy and feel free to mock me if I'm wrong...