From left, the Google executives Eric E. Schmidt, Larry Page and Sergey Brin. The technology company reported share earnings that were lower than what Wall Street had expected.
SAN FRANCISCO — Like two straight-A students who uncharacteristically fail an exam, the technology titans Google and Microsoft issued quarterly results on Thursday that disappointed investors.
Microsoft, which is engaged in a bruising takeover battle with Yahoo, topped $60 billion in revenue for its complete fiscal year for the first time. But it missed Wall Street’s profit expectations amid rising expenses and an uncertain advertising climate.
The mixed results drove the company’s stock down more than 6 percent in after-hours trading.
Microsoft’s nemesis, Google, fared little better. It also posted strong quarterly growth, reporting $3.87 billion in revenue, excluding the commissions it pays to advertising partners, which was in line with forecasts.
But Google also reported expenses that were higher than expected, along with lower-than-anticipated income from the interest on its pile of cash, causing the company to miss Wall Street’s expectation for earnings per share.
Google investors, who have been looking for signs that the company is susceptible to the recessionary winds that are blowing through other parts of the Internet, punished the stock after hours. It was trading around $493 a share, a decline of more than 7 percent.
Under more sanguine circumstances, the two reports of largely healthy earnings from Microsoft and Google may have soothed investors. But with what seems like a daily dose of bad economic news, Wall Street has been quick to react negatively when Internet companies show signs of weakness.
EBay posted disappointing results this week, and on Thursday, ValueClick and Looksmart, two companies in the display advertising business, said their profits were being hurt by the economy. The news sent their shares tumbling.
Google executives argued that they were more protected than rivals against choppy economic waters.
“We don’t believe we are inoculated from global economics, but we do believe if there is a worsening, we do better than anyone else in the ad industry,” Eric E. Schmidt, Google’s chief executive, said in an interview.
He pointed to Google’s ability to customize ads and give advertisers precise data about the success of their spending. “If you are an advertiser, you know exactly what you get from your dollar,” he said.
Investors scrutinizing Google’s earnings report, however, were probably eager to look between the lines.
Analysts noted that Mr. Schmidt had made reference, for the first time, to the “more challenging economic environment” in his prominent statement on Google’s earnings release. They also observed that Google had taken the unusual step of having Hal R. Varian, its chief economist, on the earnings call with investors and analysts.
Scott Kessler, an analyst at Standard & Poor’s, said that unlike most companies Google does not offer guidance about its future results, “so people are always trying to interpret what the company is intentionally or unintentionally trying to tell them.”
During the call, Mr. Varian said that the number of searches in certain categories like finance, real estate and luxury goods was declining. But he also said that the price of ads in those areas was increasing, as advertisers competed in auctions to get their ads in front of customers.
“During a period of slow economic growth, the last thing an advertiser wants to cut is spending on search-based advertising,” he said.
Investors were focused on other signs of weakness in Google’s business, like a slowdown in Britain. The company blamed Europe’s typically weak second quarter for the shortfall.
For Microsoft’s part, the news was also largely but not completely positive. Profit rose for the quarter based on strong PC sales in developing markets and rising demand from corporate customers. The company reported a net profit of $4.3 billion, or 46 cents a share, in its fiscal fourth quarter ended June 30, versus a profit of $3.04 billion, or 31 cents, in the same period a year ago. Revenue rose 18 percent to $15.84 billion.
Analysts said that while the company’s business was sound, it appeared to have lost control of expenses during the quarter. The amount Microsoft spends on research and development, along with sales and marketing, “was significantly higher than people expected,” said Brendan Barnicle, a financial analyst at Pacific Crest Securities in Portland.
Unlike Google, which sought to portray itself as immune from the advertising slowdown, Microsoft said that the company’s most significant area of weakness was in its ad business.
“Where we saw softness in the market was in advertising,” said Colleen Healy, Microsoft’s general manager for investor relations, attributing the weakness to budget tightening and to pricing pressure from competition.
In general, economists say the technology sector of the economy is somewhat insulated from a steep domestic downturn because it is increasingly global. Eighty-five percent of Microsoft’s revenue now comes from overseas; at Google, that figure is 52 percent.
I.B.M. is clearly benefiting from its global advance; it beat Wall Street’s estimates soundly on Thursday. The company said that its net income rose 22 percent in the second quarter compared with a year ago, to $2.77 billion, or $1.98 a share.
Analysts had expected $1.82 a share, according to a survey by Thomson Financial.
With two-thirds of its revenue coming from overseas, I.B.M. is benefiting from its role in building out the infrastructure in developing nations. Within the United States, it has focused on energy efficiency and cost savings. I.B.M.’s shares were little changed in after-hours trading.
“Any company or industry with a broad global exposure seems to be doing O.K.,” said Douglas Henton, president of Collaborative Economics, a research and consulting firm based in Mountain View, Calif. “I.B.M. and Intel and companies that are selling into the global market are doing better than companies selling into the domestic market.”
It is not clear if the continuing skirmish among Yahoo, Microsoft and the activist investor Carl C. Icahn is having any effect on the earnings of the Internet companies. But Google seems to be benefiting from the tangle in some respects. In June, it struck a 10-year deal with Yahoo to serve some ads alongside Yahoo searches, and it is now working to gain approval for that deal in Washington.
One potential wild card is that Microsoft and Yahoo are also said to be in talks with Time Warner about buying its AOL unit.
That could conceivably hurt Google. It provides the search results on AOL, and in 2005 it invested $1 billion in the company, buying a 5 percent stake.
“AOL has been a longstanding partner, and as far as I know, they are quite happy with us. And we are looking forward to having Yahoo become a very happy partner,” Mr. Schmidt said. “There is a whole drama going on with Mr. Icahn and Yahoo that we are not involved in, and we are not going to be involved in it.”
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