Microsoft online business flags despite overall revenue rise

Microsoft‘s (NASDAQ: MSFT) revenue rose 18 per cent for both its fiscal 2008 fourth quarter and year, but the company’s Online Services Business (OSB), under scrutiny due to heated negotiations to purchase Yahoo’s search business, continues to falter.

Microsoft on Thursday revealed revenue of US$15.84 billion for the quarter that ended June 30, an 18 per cent increase over the US$13.37 billion in revenue reported for the same period last year. Revenue was slightly ahead of analyst quarterly estimates of US$15.65 billion.

Earnings for the quarter were US$5.68 billion or US$0.46 per share, slightly less than median estimate from Thomson Financial analysts, who predicted Microsoft would earn US$0.47 for the quarter.

For the fiscal year that also ended June 30, Microsoft reported revenue of US$60.42 billion, also an 18 per cent increase over the prior year. Revenue again was a hair ahead of analyst estimates, which expected Microsoft to earn US$60.24 billion for the year.

While overall the company is performing well, Microsoft’s online business remains a blemish in the company’s financial statement.

Microsoft’s OSB reported revenue of US$838 million for the quarter, up slightly from US$677 million for the same time period last year, but the segment took a US$488 million loss in operating income for the fourth quarter, more than double the US$210 million operating loss the division saw last year.

For the year, OSB lost US$1.23 billion in operating income; in fiscal 2007, the business reported a US$617 million loss in operating income.

In a conference call to discuss the results, Microsoft’s Colleen Healy, general manager of investor relations, said search queries and page views for OSB grew in the year, though monetization “lagged” due to tightening advertising budgets and the competitive price of display advertising.

Microsoft grew the number of advertisers using its ad platform by 28 per cent in fiscal 2008, she added.

Microsoft has tried unsuccessfully since February to bolster OSB by purchasing Yahoo. Relations between the two companies have become increasingly heated of late, as Microsoft has teamed with investor Carl Icahn in a bid to replace Yahoo’s board with those favorable to a deal.

Microsoft also has sought to purchase only Yahoo’s search business, a bid Yahoo’s management team has blocked. Microsoft is reportedly in talks with AOL to purchase that business as another option to boost online revenue.

In a press statement, Microsoft attributed its strong quarter and fiscal year to the customer demand for all of its products, including Windows Vista, for which the company has sold 180 million licenses in about a year-and-a-half.

However, some of those licenses are to customers that purchased Vista but then downgraded to XP, customers and analysts have said.

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Jim Love, Chief Content Officer, IT World Canada

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