Microsoft's Online Revenue Actually Growing Again (But So Are Losses)

Microsoft’s long-struggling web business got some more good news last night, when the company reported an acceleration in advertising revenue growth.  Last week, the world was abuzz with news that Microsoft’s search share had finally increased (at the expense of Yahoo’s).  Now, those who had also written off the web business’s financial performance (your editor) have cause to reconsider.

Microsoft’s online revenue climbed to $688 million in the quarter, up 19%.  Ad revenue, moreover, grew by an even stronger 33%.  According to CFO Chris Liddell, the strength was “across the board.”  Of course, $688 million is a small fraction of the $3.87 billion in online revenue Google reported last night (17%) and even well shy of Yahoo’s weak Q2 performance, but at least it’s finally growth.

Alas, revenue wasn’t the only thing that grew at MSN (MSN?  Windows Live?  Microsoft’s Online Division?  Has the company picked a brand yet?).  Losses grew, too.  And this is where any favourable Microsoft-Yahoo-Google comparison falls flat.  The division lost $239 million in the quarter, significantly more than the $187 million last year (not to mention the profits MSN always used to generate when it was merely competing against Yahoo and AOL).  This huge loss compares to the mountain of money being made by Google ($655 million in free cash flow in Q2) and even the impressive $350 million minted by Yahoo.  If Yahoo upped its spending by $1 billion, it would presumably be able to grow revenue 33%, too.  So, no, your editor is not yet changing his opinion that Microsoft’s online business will forever be an also-ran.  More from Matthew Nelson, ClickZ

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