Microsoft’s Q2 FY24 earnings report just dropped overall, the company is riding high yet again on the back of its Office and Azure businesses while Widows enters slow recovery and hardware continues to plummet.
Microsoft made $62B in revenue in Q2, showing a healthy increase of 18 percent year over while adding $21.9B in net income to its vault. The $21.9B in net income reflects a 33 percent increase when compared to the same quarter last year.
Investors seemed pleased with the broad strokes of the company’s earnings report giving the stock a 1.08 percent increase from yesterday, going from $405.00 a share to $409.41. When viewing earnings per share, Microsoft moved the needle from $2.20 a year ago to $2.93 as of close Tuesday.
While most of Microsoft’s earnings report reads as a corporate revenue highlight wheel, not everything was sunshine and roses for the company. Microsoft’s devices revenue slumped again for five consecutive quarters now, ending the quarter with a nine percent decrease year over year.
Despite the launch of the Surface Laptop Studio 2 and the Surface Laptop Go 3, Microsoft hasn’t been able to find a way to reverse its declining revenue trend for the hardware business. However, not all the losses for the Surface division are solely the blame of PCs arm of Microsoft. Last year, Microsoft began bundling its Mixed Reality projects under the Surface brand and that has a dampening effect for the company’s hardware revenues report.
If rumors hold true, 2024 could be a year where Microsoft stems its hardware-revenue bleeding with new updated PC devices such a physical redesign of its traditional clamshell laptop offering the Surface Laptop and longer lasting Surface Pro 10 variants.
CEO Satya Nadella warned of the potentiality of the Surface business dipping into negative revenue for the fifth quarter of last earnings, but that was also when Windows and the PC industry was also slumping.
For this quarter, Microsoft’s Windows business managed a relative turnaround with the division seeing a nine percent increase on the back of OEM growth. Both Windows OEM and Windows Commercial product and cloud services saw eleven and nine percent growth, respectively.
The biggest winner in all of Microsoft’s portfolio is once again the company’s Intelligent Cloud business which brought in $25.9B in revenue that represents constant growth of twenty percent year over year. A close second to Azure and its many platforms and services was the Productivity and Business Processes department which packaged up $19.2B in revenue for the quarter and is up thirteen percent year over year.
A surprise for investors was Microsoft reporting Activision Blizzard numbers in the quarter which were relatively positive. As part of the More Personal Computing business under the Xbox division, Activision raised the sails of the brand and brought it up a whopping 61 percent year over year. Activision Blizzard alone accounted for $2B in revenue and with expenses and transaction costs accounted at $930M for the year, it ultimately ended in an operating loss of $440M which isn’t bad for a starting price tag of $69B.
Microsoft recently laid off 1,900 Activision Blizzard employees last week and it’ll be a quarter before investors get a more accurate accounting of expenses for its gaming division which is looking to integrate more of its new publishing arm into its existing businesses.
Business Highlights
Revenue in Productivity and Business Processes was $19.2 billion and increased 13% (up 12% in constant currency), with the following business highlights:
· Office Commercial products and cloud services revenue increased 15% (up 13% in constant currency) driven by Office 365 Commercial revenue growth of 17% (up 16% in constant currency)
· Office Consumer products and cloud services revenue increased 5% (up 4% in constant currency) and Microsoft 365 Consumer subscribers grew to 78.4 million
· LinkedIn revenue increased 9% (up 8% in constant currency)
· Dynamics products and cloud services revenue increased 21% (up 19% in constant currency) driven by Dynamics 365 revenue growth of 27% (up 24% in constant currency)
Revenue in Intelligent Cloud was $25.9 billion and increased 20% (up 19% in constant currency), with the following business highlights:
· Server products and cloud services revenue increased 22% (up 20% in constant currency) driven by Azure and other cloud services revenue growth of 30% (up 28% in constant currency)
Revenue in More Personal Computing was $16.9 billion and increased 19% (up 18% in constant currency), with the following business highlights:
· Windows revenue increased 9% with Windows OEM revenue growth of 11% and Windows Commercial products and cloud services revenue growth of 9% (up 7% in constant currency)
· Devices revenue decreased 9% (down 10% in constant currency)
· Xbox content and services revenue increased 61% (up 60% in constant currency) driven by 55 points of net impact from the Activision acquisition
· Search and news advertising revenue excluding traffic acquisition costs increased 8% (up 7% in constant currency)
Microsoft returned $8.4 billion to shareholders in the form of share repurchases and dividends in the second quarter of fiscal year 2024.
Microsoft CEO Satya Nadella and CFO Amy Hood will be on a call a little bit later to discuss future outlooks and potential headwinds for Q3, we’ll update accordingly.
