Jordan McCollum, Harrison Hoffman and Mary Jo Foley are talking about Microsoft’s earnings report, especially the new numbers for the Online Services Business (OSB). The OSB grew significantly in size, but had a larger operating loss than a year earlier. For fiscal 2007 (July 2006-June 2007), revenues were $2,474 million, up $175 million from fiscal 2006. The operating loss, however, rose from $74 million in fiscal 2006 to a much higher $732 million in fiscal 2007, thanks to $3,206 million in expenses.
As you can see in the chart above, expenses have grown significantly, and revenues are growing, but slower than the expenses. As a result, the profit turned into a loss, and the loss has been growing for about a year. Luckily, once the infrastructure is settled, expenses should stop growing, and they might even start falling, while revenues should continue to rise. If expenses stayed constant, and revenues kept growing, OSB would break even in about five quarters.
Here is the trend, just for expenses:
As far as earnings go, the OSBâ€™s revenue increased 19% to $688 million in Q2, but was far outpaced by their operating lossâ€”$239 million this year, up 28% from $189 million in Q2 last year. The year-over-year data fares even worse: revenue grew only 8%, while operating loss increased one hundred fold from $74 million to $732 million. Losses were largely due to increased costs of labor, content and hardware, according to the release.
According to the report, the Online Services Group, which includes Windows Live, lost 732 million dollars this year, way up from the 74 million that they lost the previous year. Now, what could they have spent 658 million extra dollars on this year. Luckily for us, they let us in on that too. The report sites, “increased data center costs in our Online Services Business,” as the reason for the extra losses.
Another source of extra spending in the OSG was an increased headcount. They are hiring a lot of people and paying them good money…
This is hard evidence, Windows Live isn’t going anywhere, any time soon, especially with a massive investment like this. I’m personally excited to see what they do with it.
Microsoftâ€™s Online Systems Business, which is the group overseeing Live (including Live Search), MSN and adCenter among other products, grew revenues in the fourth fiscal quarter primarily as a result of advertising revenue, which Microsoft said was up 33 percent over last yearâ€™s Q4, to $544 million.