Why Shares of MicroStrategy Inc. Slumped Today

By Timothy GreenMarketsFool.com

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.

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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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Timothy Green has no position in any stocks mentioned. The Motley Fool recommends MicroStrategy. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.