Microsoft capped off a busy week on Friday with its pleasantly surprising quarterly earnings report. Quarterly revenues were $12.92 billion - a 14% decline from this point last year. Net income was $3.57 billion, or 40 cents per share.
These results, though, were higher than Wall Street analysts had been projecting; specifically, those polled by Thomson Reuters expected the Redmond-based company to post a profit of 32 cents per share on $12.37 billion in sales.
"We are very pleased with our performance this quarter and particularly by the strong consumer demand for Windows," Microsoft CFO Chris Liddell said during the earnings call. In fact, he noted that earnings per share would have been 52 cents had it not been adjusted for deferred Windows 7 revenue.
Good News in Triplicate
Microsoft's earnings follow similarly hopeful quarterly reports from Google and from Yahoo – results that are raising hopes that the online ad markets are poised for recovery. Microsoft, given its diverse product lineup, is less of a bellwether than Yahoo or Google. Still, comments made by Liddell reflect current industry trends, starting with the difficulty display advertising is still experiencing.
Microsoft's display business, he said, has seen "good volume" that is "relatively in line" with Yahoo. "That's been growing in double digits on the volume side."
The difficulty has been on monetization, he added. "It's been tough and it's clearly because of what's been happening in the overall economy. And I think people have been fixed in to have budgets they might have pushed more in the search side than the display side. We should start to see that improve going forward as we see the economy recover, so I think you will see display start to get better."
Elsewhere at Microsoft
The earnings followed news last week that Microsoft had inked real time search deals with Twitter and Facebook, - an announcement made with such fanfare that it eclipsed news of a similar deal Twitter and Google are forging. The earnings report also followed on the heels of Microsoft's long awaited Windows 7 release, which from initial accounts appears to have been a successful launch.
These two developments – the search agreements in particular – may prove to be just as telling about Microsoft' future online ad prospects as its earnings report.
Real-Time Search Next Major Leap
Real time search is seen as the next major leap forward for search technology and now the industry has had time to mull over the link up with Twitter its conclusion is that these tie-ups will significantly expand ad revenues for Microsoft and Google.
Search engines have attempted to capitalize on the social networking phenom with their own sites for years, with varied degrees of success, the Twitter deals may represent a turning point.
"While helping search engines compete with social media, the new features may provide a way for Google and Microsoft to generate additional revenue by selling ads that appear alongside conversations as they take place," according to BusinessWeek. "The transactions will give each search engine additional insights into user interests, which could in turn be used to better target advertising."
