MicroStrategy Lives

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Word association time. When I say "MicroStrategy" (Nasdaq: MSTR), what image comes to mind?

For me, it's a poster I once saw in a high school textbook, depicting an angry, pointed finger, captioned by Emile Zola's famous cry: "J'Accuse!" It's all your fault, MicroStrategy. Your inflated sales figures popped the Bubble.

Sure, Fed Chairman Greenspan's incessant interest rate hikes didn't help matters. Neither did the Justice Department's pursuit of Microsoft (Nasdaq: MSFT). But mainly, for me, the defining moment of the Bubble's demise was Microstrategy's admission that it wasn't nearly as good a company as its years of assurances to investors would indicate. That started the tumble that cost investors trillions.

But time, it seems, heals all wounds. Five years and a one-for-10 reverse stock split later, MicroStrategy lives again -- and it's profitable.

No, really.

In the company's Q2 2005 earnings report, released last week, MicroStrategy announced a 27% increase in year-to-date revenues vs. its year-ago numbers. It translated those increased sales into a 50% increase in net profits and -- get this -- a 57% increase in profits per diluted share. That's right. Not only is MicroStrategy now earning profits, it's also buying back its shares, thus increasing the profits accruing to individuals who hold the remaining shares. In short, MicroStrategy is profitable and shareholder-friendly.

Okay. You're finding this hard to believe. That's completely understandable: Once bitten, twice shy, as the saying goes. (And 1:10 bitten, 20 times shy, I imagine.) But this time, MicroStrategy has actual cash to back up its promised profits.

According to the company's cash flow statement (which MicroStrategy actually deigned to include with its earnings release, in contrast to so many other companies), MicroStrategy generated $50.4 million in free cash flow over the first six months of this year. That's a 52% increase over H1 2004, and considerably more cash than the company's $32.6 million in net profits reported under GAAP.

To sum up: MicroStrategy reported profits. It reported them conservatively, understating its true cash-generating prowess. In the interests of transparency, it included all three key financial statements in its earnings release. And it's buying back its shares. Together, that marks a massive change from the company's habits of five years ago and shows that some companies really can learn from their mistakes.

To which we say: Congratulations and welcome back, MicroStrategy.

Still too shy for MicroStrategy? Check out the company's competitors in the business intelligence software industry:

• Business Objects SA (Nasdaq: BOBJ)
• Cognos Inc (Nasdaq: COGN)
• Hyperion Solutions Corp (Nasdaq: HYSL)

Curious about the workings of a reverse split? Learn more in A Reverse Split -- Ouch!

Fool contributor Rich Smith does not own shares of any company named above.