Blog Post

Shocker: Microsoft Talks Bing And … Profits

It says something that it’s news when a Microsoft (NSDQ: MSFT) executive says the company actually expects its online business to be profitable some day. During an interview with Reuters, Microsoft SVP Yusuf Mehdi actually used the p word to describe the future of the company’s online business, saying “if we grow share, we will grow our way into profitability and we have confidence we can do that.”

CFO Peter Klein was also relatively bullish when asked during last week’s earnings call when the company’s share gains in search would translate into “revenue growth acceleration.” He responded: “What we really need to do is get the Yahoo (NSDQ: YHOO) deal done, get that integrated and start to get the benefits of scale. So this is something you would expect to see in 2011 and beyond.”

The remarks are significant since Microsoft has been moving in the opposite direction for 15 straight quarters. Just take a look at this chart from Business Insider which documents Microsoft’s streak of online losses. And the online division’s finances showed no signs of improvement last quarter, despite the company’s notable gains in search share. The online services division posted a $478 million loss, compared to a $378 million loss during the same period a year ago. Revenue was slightly down.

Microsoft has typically acted pretty nonchalant about all of that red. This summer, Microsoft CEO Steve Ballmer said that the company was willing to invest 5 to 10 percent of its overall operating income on the search business for up to five years (which adds up to a staggering $11 billion).

Ballmer has also said however that he will hold the online division accountable, saying he doesn’t want to be known as the “Jerry Yang of this market in a different way, the guy who invested forever and got no — and I’m not trying to be rude to Jerry, but the whole episode left me understanding how shareholders can get frustrated with managements who aren’t serious about performance.”