Microsoft (MSFT) has cut its outlook for MSN on a deteriorating environment for display advertising, JP Morgan analyst Imran Khan says.
The division’s organic advertising growth accelerated modestly in the first quarter, from 26% to 29% (way better than Yahoo, but still far from Google’s 42% growth). The division’s operating loss also decreased, but it is still losing a spectacular $1 billion a year. Compare this to Yahoo (YHOO), Google (GOOG), and even hobbled AOL (TWX), the latter of which is still highly profitable.
Imran has the details:
Microsoft’s Online Services Business reported fiscal 3Q revenue of $843 million, up 40% Y/Y. On an organic basis, OSB revenue grew 16% Y/Y to $699M, an acceleration from last quarter’s 13% growth. OSB top-line growth was driven by a 39% Y/Y increase in advertising revenues (29% Y/Y organic growth) vs. last quarter’s 38% Y/Y growth (26% Y/Y organic growth).
* The company reported an operating loss of $228M. OSB posted a $228M operating loss, down from a loss of $245M last quarter. The company expects that they will remain in investment mode throughout the year and that OSB is a multi-year strategy. In F’09, the company expects that 20%-25% of its Y/Y expense growth forecast will be allocated to OSB.
* Mgmt lowered F’08 Y/Y growth guidance to 35%-36% from 37%-40% on softer expectations for display ad performance. Mgmt now expects fiscal 4Q’08 OSB revenues to grow 37%-41% Y/Y and F’08 OSB revenues to be up 35%-36% Y/Y. 3Q’s growth of 40% Y/Y was at the low end of prior guidance for 40%-45% Y/Y growth.
* Microsoft grew its audience during the quarter and made further strategic acquisitions. During the call, management highlighted many achievements in 3Q’08 including 18% growth in LiveIDs to 448M and the acquisitions of Caligari (collaborative 3-D modelling), YaData (customer micro-segment management) and Rapt (behavioural targeting).
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