MSN Revenues Decline Slightly; Investments Continue

Revenues at Microsoft’s MSN declined 3 percent year-over-year, coming in at $580 million, as compared to $598 million during the same period last year. The company revealed results and plans for MSN when it announced earnings for its fiscal fourth quarter of 2006 yesterday.

This quarter’s earnings report comes as Microsoft pumps dollars into its MSN, Live.com and other ad-supported businesses, hoping to benefit from the boom in online advertising.

In the most recent quarter, growth in the advertising portion of the MSN business was flat, according to the company, while the access business, unsurprisingly, declined 13 percent. While Microsoft executives didn’t break out display advertising revenue, CFO Chris Liddell said expansion was in line with growth in the industry as a whole.

As for search, the company indicated that it has been making progress in transitioning its sponsored listings to home grown ads. Previously, Yahoo Search Marketing had syndicated its ads on MSN. The company said that all U.S. search ads are now served by MSN adCenter. The system is also fully up and running in France and Singapore, where the product received early trials. A roll-out in the United Kingdom is planned for August.

“It’s not far off that we’re going to have 100 percent of our business on adCenter,” said Liddell on a conference call with investors. “Clearly, it’s in our line of sight.”

In keeping with those plans, Microsoft plans to spend $500 million in developing its online services business, which includes MSN, Search, adCenter, Live.com, Office Live and CRM Live, in the coming fiscal year. Some of those dollars will go into creating and acquiring content to drive display advertising. The company will also work to develop its search and advertising platforms, Liddell said.

“We do not expect MSN to be profitable in this fiscal year [2007],” Liddell added. “We see for MSN that fiscal year ’07 will be an investment year.”

Overall, Microsoft reported fourth quarter revenue of $11.8 billion, a 16 percent increase over the same period last year. Net income for the fiscal fourth quarter was $2.38 billion, or $0.28 per share. The net income figure represents a 24 percent drop over the same period a year ago, when earnings were $3.7 billion, or $0.34 per share.

The company also announced a $20 billion stock repurchase, to be completed August 16, 2006. Additionally, Microsoft’s board of directors authorized a second $20 billion for an ongoing share repurchase program.

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