Microsoft: Online Ad Revs Climb 38 Percent in Latest Quarter

Microsoft today said online advertising revenue reached $623 million during its second quarter, which is the three-month period ended December 31. It represents an increase of $170 million or 38 percent from the same period in 2006.

That brings Microsoft’s online advertising revenue to $1.1 billion for the last six months of 2007, according to the company’s second quarter earnings report.

Microsoft has made its digital ad business a priority, acquiring digital marketing firm aQuantive in August 2007 for $6 billion.

Online advertising falls under Microsoft’s Online Services Business, which collected total revenue of $863 million for the three-month period ended December 31. That’s an increase of 38 percent over the same period in 2006.

In addition to aQuantive, Microsoft’s Online Services Businesses unit includes its Live Search and the MSN portals. The unit posted an operating loss of $245 million during the company’s 2007 second quarter, compared to $118 million during the 2006 second quarter.

During the earnings call, Colleen Healy, Microsoft’s general manager, investor relations, pointed to the company’s investment in Facebook, 49 million downloads of the Windows Live Suite since its November launch, and additional revenue from aQuantive.

“Since we announced our acquisition of aQuantive, 60 new publishers have switched to the Atlas publishing platform,” she said. Publishers include Viacom and CNBC.

Looking forward, Chris Liddell Microsoft’s chief financial officer, predicted the Online Services Business division will grow between 37 to 40 percent over the next two quarters, and that online advertising is expected to grow as well. He said Microsoft’s acquisition of Fast won’t have a fiscal impact on its annual results.

Liddell also acknowledged the operating loss for the Online Services Business division, but insisted the company is taking a long-term approach to the division’s development.

“For the online business it will be, for the foreseeable future, in an investment mode,” he said. “We are building a business that we’d like to see have critical mass in the next few years. When you look for it in the online business you have to think about the revenue several years out and that’s the infrastructure that we’re building.”

For the three-month period, Microsoft reported net income of $4.7 billion on revenue of $16.4 billion.

Matthew G. Nelson contributed to this report; it has been updated to include Microsoft executive interviews from the earnings call.

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