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MicroStrategy's Revenue Falls Again, but Management Is Focused on Its Long-Term Strategy

Enterprise analytics and mobility software specialist MicroStrategy Incorporated (NASDAQ: MSTR) reported its third-quarter results on Oct. 26. The company saw its sales slide by 3.6% year over year, as MicroStrategy continues to see revenue declines in its product license and subscription services.

Image source: Getty Images.

MicroStrategy results: The raw numbers

Metric

Q3 2016

Q3 2017

Year-Over-Year Change

Sales

$129.8 million

$125.2 million

(3.6%)

Net income

$26.6 million

$17.9 million

(32.7%)

Adjusted earnings per share

$2.31

$1.56

(32.4%)

Data source: MicroStrategy.

What happened with MicroStrategy this quarter?

  • Product licenses and subscription services revenue fell by 21.4% year over year, to $29.3 million in the third quarter.
  • Product support revenue was essentially flat in the third quarter, with just a 0.6% increase to $72.9 million.
  • MicroStrategy's "other revenues" segment continued to grow in the third quarter, with sales hitting $23 million -- a 14.3% increase year over year.
  • Operating expenses increased again this quarter, this time with a 4.3% year-over-year jump.
  • Income from operations fell to $20.6 million, down from $30 million in the third quarter 2016.
  • MicroStrategy finished the third quarter with $646.1 million in cash, cash equivalents, and short-term investments.

What management had to say

Though it wasn't a stellar quarter for MicroStrategy in terms of revenue, CFO Phong Le said on the earnings call that management is happy with the progress the company's making.

Specifically, Le said that MicroStrategy is investing in new initiatives for its corporate, digital, and field marketing presence and other services. "As we focus our effort [on] investments in these initiatives, we expect it will take several quarters before the full cost of revenue impacts hit our income statement," Le said.

He also pointed out that despite the 21% year-over-year drop in product licenses and subscription services revenue, licensing revenue improved by 13% sequentially. "This is particularly aided by recovery in our volume of big deals greater than $500,000," Le said, adding that the company is deriving a greater portion of its revenue from new customers compared to the same time last year.

Le mentioned that MicroStrategy's operating costs are rising because of new investments in the company, include a 7% year-over-year jump in research and development spending and 37% increase in marketing expenses.

CEO Michael Saylor added that he was happy with the company's profitability in the quarter and "was pleased with the quality of the deals that we were doing." But he also said that management wasn't pleased that the company's software bookings were lower that they were a year ago.

Looking ahead

Management shed some light on what investors should expect in the coming quarters. Saylor mentioned specifically that product development will become increasingly important. "There are whole sets of product themes that we are investing in in order to grow the business and we are going to ramp up those investments," he said.

Saylor stressed that the company will continue to spend more money in new investments in fiscal 2018, after it evaluates how well fourth-quarter spending goes:

... if we see high ROI [return on investment] in a particular marketing campaign or channel, we may increase it going into Q1. If we don't see something that's effective, we may decrease it. But it won't be driven by our revenue. I think we are thinking about it much more long term than that.

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Chris Neiger has no position in any of the stocks mentioned. The Motley Fool recommends MicroStrategy. The Motley Fool has a disclosure policy.