Microsoft reported earnings per share of $2.93 for the second quarter of the 2024 fiscal year, exceeding expectations and representing a 33.2% year-over-year growth.
Revenue and Growth Metrics
The company’s revenue reached $62.02 billion, marking a significant 17.6% year-over-year increase.
Commercial Business Segment
In the commercial business segment, Microsoft experienced high demand for its cloud offerings, including AI services, leading to a faster-than-expected growth in Azure’s number of large and long-term contracts. The efficiency of the Microsoft 365 suite contributed to the expansion of ARPU for the commercial Office business.
Commercial Orders and Obligations
Commercial orders increased by 17%, driven by the growth in Azure’s long-term contracts and rapid execution of key annuity sales deals. The remaining performance obligations increased by 17% to $222 billion, with approximately 45% expected to be recognized as revenue over the next 12 months.
Cloud Computing Revenues
Microsoft’s revenues from cloud computing amounted to $33.7 billion, reflecting a robust 24% year-over-year growth.
Consumer Business Segment
In the consumer business segment, Microsoft witnessed stable markets for personal computers (PCs) and advertising. PC market volumes continued to stabilize, while the gaming console market was slightly lower.
Strategic Acquisition
Microsoft completed the acquisition of Activision Blizzard on October 13, 2023.
Productivity and Business Processes Segment
The segment, including office divisions and Dynamics CRM, contributed 31% of the total revenue. Revenue increased by 13% year-over-year to $19.2 billion, primarily driven by better-than-expected results in LinkedIn.
Commercial Office and Cloud Services Revenue
Revenues from commercial Office products and cloud services increased by 15%, with Office 365 commercial revenues growing by 17%.
Consumer Office and Cloud Services Revenue
Revenues from consumer Office products and cloud services grew by 5%, with Microsoft 365 Consumer subscribers reaching 78.4 million.
Microsoft’s second-quarter performance reflects robust growth across its commercial and consumer segments, driven by strong demand for cloud services and strategic acquisitions. With the completion of the Activision Blizzard acquisition, Microsoft is poised for further expansion in the gaming industry and beyond.
Impact of ERP and CRM Dynamics 365 on Commercial Orders
The weakening of new business, particularly in the ERP and CRM systems of Dynamics 365, negatively impacted the growth of orders.
Revenue Composition and Growth
The segment of intelligent cloud technologies, including server and enterprise products and services, accounted for 41.7% of the total revenue. Segment revenue reached $25.9 billion, exceeding the forecast by 2.38%.
Revenue Growth in Server Products and Cloud Services
Revenues from server products and cloud services increased by 22%, driven by revenue growth from Azure and other cloud services by 30%, including approximately 6 points from AI services.
Azure’s AI Capabilities and Market Penetration
Azure offers high-performance AI training and inference, along with a diverse selection of AI accelerators, including the latest developments from AMD and NVIDIA, as well as Azure Maia, Microsoft’s first silicon product.
Azure’s Adoption and “AI as a Service” Offering
Microsoft has witnessed active adoption of Azure AI, with over 53,000 customers currently. More than a third of these customers have joined Azure in the past 12 months. The company’s new “AI as a Service” offering enables developers to easily utilize LLMS from partners like Cohere, Meta Platform, and Mistral in Azure.
Strategic Partnerships for AI Innovation
Microsoft and Meta aim to provide an open approach to AI development, fostering innovation, collaboration, and transparency. Their collaboration spans over a decade, focusing on initiatives such as PyTorch, AI partnership, and the metaverse.
Fortune 500 Adoption of Azure OpenAI
Microsoft recently added support for the latest OpenAI models, including GPT-4 Turbo, GPT-4 with Vision, Dall-E 3, and fine-tuning. Today, over half of Fortune 500 companies use Azure OpenAI, including Ally Financial, Coca-Cola, and Rockwell Automation.
Case Studies: Walmart and Vodafone
Walmart utilizes Azure OpenAI alongside its own data and models to optimize the work of over 50,000 employees and transform the digital shopping experience for customers. Vodafone is investing $1.5 billion in cloud services and AI over the next 10 years to enhance the digital experience for over 300 million customers worldwide.
Integration of AI in Microsoft’s Data Platform
Microsoft integrates AI capabilities across its data platform, unifying operational databases, analytics, management, and AI to help organizations simplify and consolidate their data. The Microsoft Intelligent Data Platform empowers organizations with advanced AI-driven insights.
Cosmos DB and Microsoft Fabric
Cosmos DB serves as a universal database for AI-driven applications of any scale, catering to companies across industries, from AXA and Coles to Mitsubishi and TomTom. Transaction volume with Cosmos DB data has increased by 42% year-over-year. Microsoft Fabric is gaining traction in unifying computing, data storage systems, and management into a comprehensive analytics solution.
Microsoft Fabric and OneLake Data Volume Surge
Microsoft made Microsoft Fabric publicly available in the second financial quarter, assisting clients like Milliman and PwC. The data volume stored in the multi-cloud data lake, Fabric OneLake, increased by 46% compared to the previous quarter.
GitHub Copilot’s Impact on Developer Revenue
GitHub’s revenue surged by over 40% year-over-year due to Copilot’s widespread adoption and integration, with over 1.3 million paid subscribers. More than 50,000 organizations leverage GitHub Copilot Business to enhance their developers’ productivity.
AI Integration in Power Platform and Copilot Studio
Over 230,000 organizations have utilized AI capabilities in Power Platform, marking an 80% increase from the previous quarter. Copilot Studio enables organizations to adapt Copilot for Microsoft 365 or build their own auxiliary systems, with over 10,000 organizations already benefiting.
Sales and Healthcare Applications of Copilot
Copilot has assisted sales teams in over 30,000 organizations, such as Lumen Technologies and Schneider Electric, to improve customer interactions using data from Dynamics 365 or Salesforce. In healthcare, DAX Copilot is utilized in over 100 healthcare systems to enhance physician productivity and reduce burnout.
Windows and Security Operations Growth
Copilot in Windows is already available on over 75 million PCs with Windows 10 and Windows 11. Microsoft’s Unified Security Operations platform combines Microsoft Sentinel SIEM, Microsoft Defender XDR, and Copilot for Security to help teams manage an increasingly complex security landscape.
Enterprise Adoption of Microsoft Security Solutions
More than a million customers, including over 700,000 using four or more Microsoft security products, rely on Microsoft’s security offerings. The installed base of corporate mobility and security systems per user grew by 11%, exceeding 268 million seats.
Segment Analysis: Windows OEM Revenue
The segment comprising Windows OEM revenue witnessed an 11% year-over-year growth, surpassing expectations due to slight improvements in consumer markets with higher monetization.
Revenue Growth in Commercial Windows Products and Cloud Services
Revenue from commercial Windows products and cloud services grew by 9%, reflecting continued demand driven by the end of support for Windows Server 2012.
Conclusion: Microsoft’s Continued Growth Trajectory
In the second quarter of 2024, Microsoft (MSFT) demonstrated remarkable progress across its various business segments, showcasing robust revenue growth, particularly in cloud services, gaming, and search advertising. As the company continues to innovate and expand its offerings, it anticipates sustained growth in the upcoming quarters.
Key Financial Highlights:
- Cloud Adoption Surge: Windows cloud usage surged by over 50% annually, reflecting a significant shift towards cloud-based solutions. Commercial deployments of Windows 11 doubled year-over-year, with companies like HPE and Petrobas adopting the OS for their workforce.
- Revenue Growth Across Segments: Revenue from gaming surged by 49%, driven by the acquisition of Activision, while revenue from Xbox content and services saw a 60% increase. Overall, gross profit increased by 20.2% annually to $42.3 billion, with Microsoft Cloud contributing 72% of the total.
- Operational Efficiency and Margin Improvement: Despite increased operational expenses, operational profit rose by 33%, with a margin expansion of 490 basis points to 43.6% annually. Operational income from productivity and business processes grew by 25.8% to $10.28 billion.
- Strong Cash Position: Microsoft maintained a strong cash position, with total cash, cash equivalents, and short-term investments totaling $81.01 billion as of December 31, 2023. Long-term debt decreased to $47.1 billion during the same period.
- Shareholder Returns: The company returned $8.4 billion to shareholders through share repurchases and dividends, underscoring its commitment to delivering value to investors.
Future Outlook:
Looking ahead, Microsoft expects quarterly revenue to range between $18.6 billion and $18.8 billion, with operating expenses projected to increase between $15.8 billion and $15.9 billion. Additionally, the company anticipates revenue growth in the productivity and business processes segment to range between $19.3 billion and $19.6 billion.
In Azure, Microsoft foresees stable revenue growth in the next quarter, underscoring its confidence in continued performance across its cloud offerings.
As Microsoft continues to leverage its strengths in innovation, cloud computing, and gaming, it remains well-positioned for sustained growth and value creation for shareholders in the evolving digital landscape.
