Days after peer Qlik Technologies' (NASDAQ:QLIK) third-quarter results disappointed investors, shares of MicroStrategy (NASDAQ:MSTR) fell over 10% after hours Monday on declining revenue. Here's a closer look at all the pertinent year-over-year figures from the company's Q3 report:
|Metric||Q3 2015 Actuals||Q3 2014 Actuals||YOY Growth|
|Revenue||$129.54 million||$151.2 million||(14.3%)|
|GAAP net income||$23.9 million||($0.8 million)||3,087.5%|
|Earnings per share||$2.06||($0.07)||3,042.9%|
|Cash from operations (trailing nine months)||$123.44 million||$16.32 million||656.4%|
Commenting on the results, President Paul Zolfaghari said in a press release:
Our customer focus has guided the development of MicroStrategy 10.1, helping to ensure that we continue to bring cutting-edge technology to the market. Our new agile engineering development methods are resulting in new features and enhancements being rolled out to our global customer base on a more frequent basis. We are confident that 10.1 delivers an even higher level of analytics value for organizations and institutions around the world.
What went right: Cash from operations has soared through the first nine months of 2015. Bigger profits brought on by more cost cuts deserve most of the credit. For example, gross profit margin improved from 76.9% in last year's Q3 to 80.9% in the just-completed quarter, as overall cost of revenue declined 29.4%.
What went wrong: Revenue declined 14% year over year. That's the fourth consecutive quarter of year-over-year declines, and the largest over that span. (Revenue dropped 10.2% in Q1 and 10.3% in last year's Q4, S&P Capital IQ reports.) MicroStrategy is also cutting spending in sensitive areas such as research and development. MicroStrategy cut its R&D budget by nearly 38%, or more than twice the rate revenue declined over the same period.
What's next: MicroStrategy didn't include a fourth-quarter forecast with its press release. Analysts tracked by S&P Capital IQ had the company generating $147.43 million in revenue and $2.14 a share in GAAP earnings. That compares with $148.87 million and $2.01 a share in last year's Q4. Longer term, analysts have MicroStrategy growing earnings by an average of 70% annually during the next three to five years.
In the meantime, investors should focus on spending trends. R&D is a particular concern that I've mentioned in earlier coverage of MicroStrategy earnings. There's no reason to believe the company can avoid big investments in new technology for any length of time, especially when faster-growing peers such as Qlik Technologies have mostly maintained a healthy level of R&D spending. (Though, to be fair, Qlik did slightly reduce research outlays in Q3 on a year-over-year basis.)