Digital Media

Shares of SAP and Google continued their downward trek, as Wall Street weighed in Tuesday with earnings cuts.

Google's shares dropped as low as 5.6 percent in intra-day trading to $350.26 a share, following a 2008 and 2009 estimated earnings cut and lowered price target offered by Stifel Nicolaus analysts. And SAP, which saw its shares pummeled Monday after issuing a warning its third quarter was not shaping up as anticipated, suffered a further decline as analysts cut their earnings estimates.

SAP, an enterprise software behemoth, had its price target reduced to $35 a share from $45 a share by Patrick Walravens, a JMP Securities analyst. He also reduced his SAP earnings estimates to 1.81 euros ($2.47) per share from 1.90 euros ($2.59) per share for 2008, and his 2009 forecast to 2.14 euros ($2.92) from 2.18 euros ($2.97) per share.

Walravens noted in his SAP research note:

While the valuation is getting interesting, we still have several concerns. First, one industry source suggested to us that 4Q could see "a big drop" in orders compared to prior fourth quarters. We think it is important to get a read on how the 4Q business is building and how 2009 might look. Second, our due diligence suggests that 2Q and 3Q may have each included license revenue in the tens of millions from a deal with a major food company--possibly setting up a more difficult sequential comp in 4Q. Third, as we discussed last week, another industry source suggested that one of SAP's customers may have stalled a deal as it saw its own customers beginning to delay payments. This behavior may well intensify in 4Q. Last, we note that it may be more difficult for SAP to reduce expenses than might be the case for Oracle given the high concentration of SAP employees in German and Europe.

On the Google front, analyst George Askew and Reed Meyer of Stifel Nicolaus lowered their Google price target to $525 a share from $600 a share, as well as cut the earnings estimates for 2008 and 2009.

The analysts cut Google's earnings estimates to $19.37 a share from $20.20 a share for 2008, while also trimming back 2009 to $23.51 a share from $26.01 a share.

Askew and Meyer noted in their research note:

We are reducing our financial projections for Google to reflect a more cautious global economic outlook. Our belief is based on 1) the apparent sharp slowdown in business activity late in 3Q08 for companies globally as the ongoing credit crisis depressed business and consumer confidence, and 2) the negative revenue impact of foreign currency moves relative to the stronger U.S. dollar. We conservatively project the economic slowdown to continue through 2009.

Google is scheduled to report its third quarter financial results on October 16, while SAP is scheduled to report its earnings on October 28.

Click here for ongoing coverage from CNET News, 'Tough times for tech'

With only a week into the fourth quarter, the number of companies that have already rejiggered their financial forecasts--even before they've reported their third-quarter results--has gone up two-fold, according to a company that tracks earnings estimates.

SAP and Netflix are two of the latest examples of companies that have retooled Wall Street's expectations for how to perceive their fourth quarter financial performance, even though they have yet to announce their third quarter results that ended on September 30.

To date, 43 companies have issued preliminary guidance for the fourth quarter, and while the aggregate numbers are low, it nonetheless is twice the level that has been seen in the previous three quarters in the days that followed the end of the quarter, said David Dropsey, senior research analyst for Thomson Reuters.

"In this kind of economic climate, it could be the start of a trend to offer (financial) guidance more often and earlier," Dropsey said.

Typically, companies usually wait until they report their quarterly results and at that time offer up a forecast of how they think they'll do for the coming quarter and year. That guidance will often send Wall Street analysts scrambling to retool their earnings estimates and projections--figures that investors will use as a tool when assessing whether to plunk down money on a particular stock.

In the case of SAP and Netflix, which both indicated the next three months will be rougher than they previously thought, investors got spooked big time.

SAP's shares plummeted 17.6 percent in intraday trading before closing at $39.68 a share, down 13 percent, during the regular trading day. Netflix, meanwhile, took a 13 percent hit in intraday trading before regaining some of that lost ground to close at $26.49 a share, down 8.56 percent.

And although the number of companies making preliminary warnings has doubled in comparison with previous quarters, those warnings aren't always bad news.

Historically, for every two companies issuing negative preliminary quarterly results, there is one company issuing a preliminary warning that its quarter will be better than Wall Street's forecast.

That same 2-to-1 ratio remained true in this latest quarter, as well, Dropsey said.

"For the most part, tech and consumer companies that sell discretionary items tend to give the most guidance," Dropsey said. "In this environment, where there is a lot of negative views on companies that sell discretionary items, those companies may want to say, 'we're not doing so bad.'"