Microsoft Reports Strong Q1, Pledges Investments in Advertising, Search

In a quarter in which it completed the $6 billion acquisition of digital marketing company aQuantive, Microsoft enjoyed a 27 percent increase in its revenue over the same period in 2006. Microsoft executives promised further investments in advertising and search.

Microsoft reported revenue $13.76 billion for its first quarter, which ended Sept. 30, 2007. The increase was attributed to strong international growth, sales of its XBox 360 gaming platform, the launch of its Halo 3 gaming title, the sale of Windows Vista and other factors.

“Q1 was our fastest growing first quarter in seven years,” said Chris Liddell, Microsoft’s chief financial officer. “The performance was across all segments and divisions and geographies.”

Microsoft’s Online Services Business segment saw an increase to $671 million from $536 million in the same period in 2006, and operating income loss of $264 million compared to $102 million in the same period last year. The Online Services Business includes Windows Live services, Live Search, the MSN.com portal, as well as its advertising and display ad businesses.

“Excluding aQuantive, growth was in line with expectations,” Liddell said of the segment. “If you look at underlying advertising revenue growth, it was… around 25 percent for the quarter year on year, which is acceptable.”

Liddell pointed to the integration of aQuantive without a significant loss of employees, and yesterday’s equity stake and advertising partnership with Facebook as part of a two-year plan for building Microsoft’s advertising platform.

“We’re pleased by the progress in putting the building blocks in place,” he said.

In its filing with the Securities and Exchange Commission, Microsoft said it expects the aQuantive acquisition — Microsof’s largest to date — will help the company provide advertiser and publisher solutions for cross media planning, video-on-demand, and Internet Protocol television.

Liddell also stressed Microsoft will continue invest in its search business, including the four vertical areas of Local/Maps, Entertainment, Health and Shopping as announced last month.

“We are investing in the organic aspects of the business. A lot of investment has gone into the search product itself, and we’re extremely happy with the improvements on aspects like relevance, which is critical going forward,” he said.