MicroStrategy Incorporated's Earnings Soar on Lower Costs

Image source: MicroStrategy.

MicroStrategy Incorporated (MSTR 1.69%) reported fourth-quarter results on Jan. 27. The business intelligence software provider delivered sharply higher profits as cost-cutting more than offset lower sales.

MicroStrategy results: The raw numbers

Data source: MicroStrategy Q4 2015 earnings press release.

What happened with MicroStrategy this quarter?
Revenue fell 4% year over year to $143.5 million as foreign currency movements dampened results. Product licenses and subscription services revenue jumped 20% to $49.1 million, but that growth was offset by a 6% decline in product support revenue to $70.3 million and a 28% decrease in other services revenue to $24.2 million.

Cost of revenue plummeted 26% to $23.4 million, leading gross margin to improve to 83.7%, up from 78.8% in the fourth quarter of 2014.

In addition, lower software development, marketing, and restructuring costs led to a 12% decline in operating expenses to $74.2 million. That helped to drive income from operations 38% higher to $45.9 million. And non-GAAP income from operations, which excludes share-based compensation expense and restructuring costs, increased 28% to $50.7 million.

All told, net income -- aided by a lower effective tax rate -- surged 72% to $39.1 million, and earnings per share soared 70% to $3.38 per share.

Looking forward
While profit gains fueled by substantial cost cuts in key sales-growth-producing areas such as R&D and marketing can be a red flag, CEO Michael Saylor touted the benefits of MicroStrategy's operational efficiencies during the company's conference call, particularly its leaner -- but more productive -- sales force. Saylor also hinted that MicroStrategy would soon turn its attention away from cost-cutting and toward more growth-focused initiatives.

Moving on to the coming year, if you look at the plan for 2016, we are now 18 months into a three-year turnaround. Year one was a consolidation and all about rationalization. And that started in the middle of 2014 and proceeded ... through the middle of 2015. We're in the middle of year two and our focus has been on product and process excellence. Year three is going to be all about growth and market expansion.

If Saylor and his team can lead MicroStrategy to renewed revenue growth while maintaining the company's now more efficient and profitable operations, MicroStrategy's investors may be in store for sizable gains in the years ahead.