Image Source: MicroStrategy.
What: Shares of enterprise software provider MicroStrategy (NASDAQ: MSTR) slumped on Friday following the company's second-quarter report. The company missed analyst estimates on all fronts, posting a steep revenue and earnings decline. At 11:30 a.m. EDT, the stock was down about 10%.
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So what: MicroStrategy reported second-quarter revenue of $123.1 million, down 7.4% year over year and about $5 million short of the average analyst estimate. Product license revenue declined by 20% to $23.5 million, while subscription revenue rose 10% to $7.8 million. Product support revenue increased by 1% to $71.5 million, while other services revenue sank 20% to $20.5 million.
EPS came in at $1.64, down from $1.95 during the prior-year period and well below analyst expectations of $2.10. Lower revenue and higher operating costs led to the earnings decline. MicroStrategy explained in its earnings report that $4.2 million of software development costs were capitalized during the prior-year period, compared to none during the second quarter of 2016, which contributed to the 8% spike in operating costs.
Now what: Investors punished the stock for slumping revenue and profits, but CEO Michael Saylor expects the company's results to improve going forward. MicroStrategy is in the middle of a three-year turnaround plan, and Saylor expects growth to return in 2017.
With shares of MicroStrategy now down 16% year to date following Friday's plunge, the company will need to prove to investors that its strategy will ultimately pay off.
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