Microsoft just announced its third quarter earnings for the fiscal year of 2024 and unsurprisingly its cloud platforms and services continue to rake in the lion’s share of revenue and profits for the company.
However, it’s the immediate bolstering of its Xbox gaming division by its recent $68B acquisition of Activision Blizzard that remains a standout note in the company’s business portfolio as it bumps that’s helping its subscription gaming service reach a 62 percent increase in revenue year over year.
Jumping back a second to the more mundane fiscal reporting, Microsoft brought in $61.9 billion in operating revenue while it squirrelled away $21.9 billion of that for net income. Comparing year over year, Microsoft outperformed with a 17 percent increase in revenue while posting a 20 percent increase in net profit for the company.
Breaking down specific business sectors, Microsoft’s Intelligent Cloud business reported $26.7 billion in revenue, netting a 21 percent increase year over year to placate investors. More specifically, Server Products and cloud services saw their own revenue production increase by 24 percent that Microsoft attributes to Azure and “other cloud services,” which were able to substantially contribute thanks to their own 31 percent growth.
Microsoft’s Productivity and Business Processes brought in $19.6 billion resulting in a 12 percent increase. The Productivity and Business Processes division is responsible for Microsoft’s Office 365, Dynamics and LinkedIn platform which manage to achieve its own 10 percent increase YoY.
Microsoft doesn’t specifically call out AI as net negative or benefit, but it does tend to shuffle its AI investments into its Intelligent Cloud business reporting when it needs to be accounted for.
Moving on to another potential home for its AI ambitions, Microsoft reported a pleasant reversal of fortunes that its Windows OEM revenue was up 11 percent year over year. As Microsoft partners pay for the privilege to license the Windows OS from Microsoft, the increase in revenue indicates a positive trend that OEMs are in demand of the license, meaning more PCs were at least sold over the past three months.
The overall PC market has been in a soft slump coming off the highs of unprecedented PCs following the pandemic. The fact that more PC manufacturers are requesting licenses is a good sign for Microsoft.
Microsoft and its partners are expected up their marketing efforts over the next few months as the introduce new PCs with vastly different SoC architectures and minimum specifications that they hope facilitate another wave of PC’s sales that echo production during the pandemic.
Microsoft’s Xbox business has quickly taken the third spot as the most lucrative venture for the company following its successful acquisition of Activision Blizzard King. Xbox gaming saw its content and services surge to a 62 percent increase in revenue thanks largely to the integration of Activision Blizzard. Search and News advertising for Microsoft Bing continues to track a steady course of slight revenue increases, this time of 12 percent compared to last year.
Unfortunately for investors, Microsoft’s earnings succumb to another quarter of underperformance from its first-party hardware division with the devices section of More Personal Computing slagging with a decrease of seventeen in revenue year over year.
Microsoft’s devices division has posted more the five consecutive quarters of declining revenue from its devices division.
With Microsoft selling PCs as well, it’s also been subject to the same headwinds its partners are facing with consumers not purchasing devices at previous peaks of buying. In addition, the company has also provided little incentive to upgrade from currently well-made devices.
Microsoft plans to unveil a revamped line up of devices for its Surface devices with dedicated NPUs that could change trajectory of its devices revenue and profits or at the very least, stem the bleeding.
Lastly, as an investor, you’ll be happy to know that Microsoft managed to return $8.4 billion back in the form of share repurchase and dividends for the quarter.
Microsoft CEO Satya Nadella and CFO Amy Hood will be answering investor questions a little bit later on a call where there may be clarification on how the company’s recent investments into are paying off or what moves Microsoft has up its sleeve for future growth opportunities for Copilot.
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