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Another Revenue Decline for MicroStrategy

Timothy Green, The Motley Fool

Enterprise software provider MicroStrategy (NASDAQ: MSTR) reported its second-quarter results after the market closed on July 30. Revenue and adjusted earnings declined, although a gain from the sale of a domain name boosted net income under generally accepted accounting principles (GAAP). The company expects revenue from product licenses to grow this year, and it sees consolidation in the industry as a long-term opportunity.

MicroStrategy results: The raw numbers

Metric

Q2 2019

Q2 2018

 Change

Revenue

$117.7 million

$120.6 million

(2.4%)

Net income

$20.4 million

$4.8 million

325%

Non-GAAP earnings (loss) per share

($0.14)

$0.42

N/A

Data source: MicroStrategy.

What happened with MicroStrategy this quarter?

  • MicroStrategy sold its Voice.com domain name for $30 million in cash during the second quarter. This produced a gain net of tax of $21.8 million, which boosted net income on a GAAP basis. The non-GAAP (adjusted) earnings metric excludes this one-time gain.
  • Excluding the negative impact of currency exchange rates, revenue increased by 0.4% year over year.
  • Product license revenue was $20.1 million, up 4.3% year over year.
  • Subscription services revenue was $7.1 million, down 6.3% from Q2 2018.
  • Product support revenue was $73 million, down 0.9% from the year-ago period.
  • Other services revenue was $17.5 million, down 12.5% year over year.
  • Gross margin was 78.5%, down from 79.2% in the second quarter of 2018.
  • Operating expenses were $97.2 million, nearly unchanged from $97.4 million reported in the second quarter of 2018.
  • Cash, cash equivalents, and short-term investments totaled $574.8 million at the end of the quarter, down slightly since the start of the year.
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Image source: Getty Images.

What management had to say

During the earnings call, CEO Michael Saylor gave his assessment of the business intelligence market following the acquisition of Tableau by salesforce.com:

Following the Tableau acquisition by Salesforce, there are now five major full-stack vendors in the business intelligence space: SAP, IBM, Oracle, Salesforce, and Microsoft. The market needs and it desires an independent intelligence platform vendor. MicroStrategy is now the leading independent platform in this space and we have good support from the analyst community and a strong set of assets to offer the market.

Saylor also laid out a key selling point for MicroStrategy's products:

The world's not ready to trust all of their mission-critical operations to one cloud vendor. They're probably not ready to trust them all to two cloud vendors, but the world is interested in being able to integrate multiple data sources, multiple applications, and multiple platform environments in order to deploy mission-critical apps. And MicroStrategy is offering that.

Looking ahead

MicroStrategy expects to grow product license revenue for the full year. The other services segment, which CFO and COO Phong Le called "a less strategic lower-margin business for us," is expected to improve in the second half.

While revenue was down in the second quarter, the company managed to keep its operating costs steady. "We're pleased with the cost discipline and productivity improvements we are driving across the business even as we continue to make targeted investments to drive future growth," said Le.

Those targeted investments may eventually pay off, but the company's revenue growth struggles continued in the second quarter.

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Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Timothy Green owns shares of IBM. The Motley Fool owns shares of and recommends Microsoft and Salesforce.com. The Motley Fool is short shares of IBM and has the following options: short January 2020 $200 puts on IBM, long January 2021 $85 calls on Microsoft, long January 2021 $100 calls on Salesforce.com, short September 2019 $145 calls on IBM, and long January 2020 $200 calls on IBM. The Motley Fool recommends MicroStrategy and Tableau Software. The Motley Fool has a disclosure policy.