Enterprise software provider MicroStrategy (MSTR 10.60%) reported its third-quarter results after the market closed on Oct 25. Currency fluctuations led to a revenue decline, and heavy spending on sales, marketing, research, and development hobbled the bottom line. The company expects its upcoming 2019 platform release to start turning the tide, but there's no telling when earnings growth will resume.
MicroStrategy: The raw numbers
|
Metric |
Q3 2018 |
Q3 2017 |
Year-Over-Year Change |
|---|---|---|---|
|
Revenue |
$122.2 million |
$126.0 million |
(3%) |
|
GAAP net income |
$12.7 million |
$18.2 million |
(30.2%) |
|
GAAP earnings per share |
$1.10 |
$1.58 |
(30.4%) |
|
Non-GAAP income from operations |
$10.2 million |
$24.8 million |
(58.9%) |
Data source: MicroStrategy.
What happened with MicroStrategy this quarter?
- Foreign currency fluctuations reduced revenue in the third quarter by an undisclosed amount. That's a change from a benefit in the second quarter.
- Product licenses revenue was $20.3 million, down 9.4% year over year.
- Subscription services revenue was $7.2 million, down 6.3% from the year-ago period.
- Product support revenue was $74.5 million, up 2.2% from Q3 2017.
- Other services revenue was $20.2 million, a 12.4% year-over-year decline.
- Operating expenses jumped 13.8% year over year to $91.5 million, a reflection of the company's strategy to invest in sales and marketing as well as increase research and development spending.
- Non-GAAP net income was $9.6 million, or $0.83 per share. This number excludes the benefit of a $3.1 million adjustment to a tax-related charge taken in the fourth quarter of 2017.
- MicroStrategy had cash, cash equivalents, and short-term investments of $699.2 million, down slightly from the end of the second quarter.
Image source: Getty Images.
What management had to say
CFO and COO Phong Le gave an update on the company's head count amid its spending binge during the earnings call: "Sales and marketing head count increased by 64 people, or 10% year over year, and 12 people, or 2% quarter over quarter. ... Head count accelerated in our key development centers, with an increase of 149 people, or 28% year over year, and 37 people, or 6% quarter over quarter."
CEO Michael Saylor discussed the potential of the company's advisory business:
So our advisory programs are ramping up. They continue to grow rapidly quarter over quarter. I've gotten nothing but the favorable response, and I think we'll probably do about 1,000 of these engagements in the coming 12 months. And so it's becoming material. I expect it will drive services and software sales in 2019.
Looking ahead
MicroStrategy's heavy spending still hasn't produced results. The company plans to launch the 2019 iteration of its platform in December, toward the end of the fourth quarter. Le expects the increased sales and marketing spending to begin to accrue benefits as that new release ramps up.
MicroStrategy is very much a work in progress. Revenue is stagnating, profits are plunging, and the light at the end of the tunnel may still be multiple quarters away. Management sounded optimistic about the 2019 release during the earnings call, but the company will need to execute well to turn its investments into improved results.
