Revenue Growth: The Key to Success

Revenue GrowthThis earnings season has been dodgy with mixed results and, so far, has not impressed the market.

On one hand the big banks are reporting good results and improving balance sheets, but large-cap technology is showing some fragility based on my stock analysis.

Paul Otellini, president and CEO of Intel Corporation (NASDAQ/INTC), summed it up, saying, “As we enter the third quarter, our growth will be slower than we anticipated due to a more challenging macroeconomic environment.” In other words, businesses and consumers are not spending to the degree the company was hoping for.

Despite beating on earnings, Intel came up short on the revenue end. In my stock analysis, this doesn’t sound like the global economies are on the mend.

In my stock analysis, the rapid move to mobile, including smartphones and tablets, is impacting Intel in much the same way as it is with the top PC makers, such as Dell Inc. (NASDAQ/DELL) and Hewlett-Packard Company (NYSE/HPQ). My stock analysis blames the mess on Apple Inc. (NASDAQ/AAPL), as I recently discussed in “Apple’s China Ventures Keep it at the Top of My Stock List.”

Intel will need to adapt with the shift to mobile, but it will take some time (just ask Microsoft), according to my stock analysis.

Intel made a downward revision in its 2013 guidance, blaming the sluggish global economies. Revenue growth will come in at a sluggish three percent to five percent year-over-year in 2012, down from the previous high single-digit estimate. My stock analysis is there’s some work ahead.

Yahoo! Inc. (NASDAQ/YHOO) was also short on the revenue side but managed to beat on earnings per share (EPS). Based on my stock analysis, Yahoo! is a mess and needs to be fixed.

There has been speculation of a possible takeover, but so far, it has yet to materialize, and according to my stock analysis, it may not now that Yahoo! Has hired new CEO Marissa Mayer, an engineer by trade and the first engineer hired by Google Inc. (NASDAQ/GOOG) in 1999. But can she fix up Yahoo! to emulate the success she had at Google? At 37 years of age, Mayer will surely bring some fresh ideas into the mix.

While Intel and Yahoo! beat on EPS, I’m not impressed with the revenue shortfall.

Earnings reports can be made to look better (especially on lower estimates by analysts), but revenues generally indicate how well a company and the economy are doing.

A bright spot early on has been the big banks, which have been aggressively streamlining operations and cutting costs in the new era for banks.

JPMorgan Chase & Co. (NYSE/JPM), Wells Fargo & Company (NYSE/WFC), Citigroup, Inc. (NYSE/C), and Bank of America Corporation (NYSE/BAC) all beat on EPS.

In the case of BAC, the bank fell short on revenues but beat on earnings after cutting expenses by 26% to drive earnings. Citigroup also fell short on revenues.

As we move along this earnings season, watch what the major companies like Intel are saying about the global economies, as they are the best barometer.

If the economy was truly healthy, we would see earnings growth driven by stronger revenue growth, since consumers and businesses spend more when times are good, based on my stock analysis.

The key is to monitor the revenues of multi-national companies, especially those producing the raw materials essential to economic renewal, such as copper, energy, iron, forestry, and concrete. Without strong growth here, I would be concerned.