Microsoft's Web Prosperity is Forever Just Around the Corner

Most people have finally given up on the idea that Microsoft (MSFT) will ever become an online contender, but for those who are still holding out hope, the first quarter's performance offers little encouragement.

True, MSN's year-over-year revenue growth "accelerated," but the celebration is misplaced. Growth accelerated from 5% to 10%.

More importantly, advertising revenue also accelerated...from 21% Y/Y to 23%. This respectable growth massively trailed Google's (GOOG), but bested Yahoo!'s (YHOO). Unfortunately, this is more a comment on Yahoo than MSN.

Advertising growth, moreover, is impossible to view without also taking into account the expense growth of 39% year-over year. MSN grew advertising revenue by $85 milllion...and its costs by $234 million. For every $1.00 of incremental revenue MSN generated, it spent $2.75. That's not capital investment. That's operating expenses.

The growth in advertising revenue, moreover, came from display advertising on email, the home page, etc, not search. So much for encouraging signs about AdCenter.

Then there's the bottom line. Say what you will about Yahoo's glacial expansion-rate; at least it's making money. Microsoft isn't--and won't. In fact, after losing $205 million in Q1, it's on track to lose almost $1 billion this year.

For Microsoft, web prosperity will forever be just around the corner.

MSFT 1-yr chart

Comments

[Tom B:]

Ok guys, please stop buying Windows/Office. You are simply prolonging the agony by giving this clueless, inept, incompetant company a revenue stream they can blow on all kinds of completely hopeless boondoggles: Windows Mobile; XBox, Search; MS-SQL; ".net"; Quicksilver-- I could go on.

2007 May 01 11:29 PM

[Tom B:]

OOPS-- I meant "Silverlight", not Quicksilver.

2007 May 01 11:31 PM