AI

Microsoft’s Q4: Cloud Revenues Shine, Surface Sales Continue to Fall

31 July 2024

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Zaker Adham

Summary

Microsoft has released its financial results for the fourth quarter of its 2024 fiscal year, reporting $64.7 billion in revenue and a net income of $22 billion. The company's revenue increased by 15%, while net income rose by 10%.

Strong Cloud Performance

Microsoft's Intelligent Cloud segment, which includes server products and cloud services, reported revenues of $28.5 billion, a 19% year-over-year increase. This segment now accounts for nearly 45% of Microsoft's total revenue. Despite the strong performance in cloud services, Microsoft’s consumer device segment continues to struggle. Xbox hardware revenue has declined, and Surface revenue has fallen for seven consecutive quarters.

Windows and Surface Revenue

Windows OEM revenue, which represents the fees manufacturers pay to license Windows for laptops and PCs, saw a 4% year-over-year increase. This aligns with Gartner's report of a consecutive three-quarter growth in PC shipments. Microsoft also launched new Copilot Plus PCs and two new Surface devices in June, but their impact on revenue will be seen in the next quarter.

Surface revenue declined by 11% this quarter. The last increase in Surface revenue was in Q1 FY23. Changes in Microsoft's hardware portfolio and layoffs in early 2023 have not significantly impacted revenues from the Surface Pro 10 and Surface Laptop 6.

Xbox and Gaming

Xbox content and services revenue, including Xbox Game Pass, rose by 61% this quarter. Activision Blizzard's revenue contributed significantly to this growth. Without it, Xbox content and services revenue would have increased by 3% year-over-year. Xbox Game Pass subscribers now total 34 million, and Microsoft plans to launch a new Xbox Game Pass Standard plan soon.

Despite new game launches, Xbox hardware revenue dropped by 42%. Microsoft plans to release a discless Xbox Series X console in white and a special edition Galaxy Black Xbox Series X later this year. Additionally, Microsoft’s focus on cloud gaming continues, with the Xbox TV app now available on Amazon Fire TV devices.

Gaming revenue overall increased by 44%, driven by Activision Blizzard. Without this, gaming revenue would have declined by 4%. Microsoft has over 500 million monthly active gaming users, and the company expects Xbox content and services revenue to increase in the next quarter.

Office and Cloud Growth

Office commercial products and cloud services revenue grew by 12%, with Office 365 commercial revenue up by 13%. Office consumer revenue increased by 3%, with Microsoft 365 Consumer subscribers reaching 82.5 million. LinkedIn revenue also grew by 10% this quarter.

Server products and cloud services revenue increased by 21%, with Azure and other cloud services up by 29%. Despite these gains, Azure's revenue growth fell short of analysts' expectations, causing a dip in Microsoft’s stock in after-hour trading.

AI and Future Growth

AI services contributed eight points to the growth in Azure and other cloud services revenue. Microsoft anticipates further Azure growth in the second half of its 2025 fiscal year due to infrastructure investments and rising demand for AI services.

Microsoft employees will receive a one-time cash award, ranging from 10-25% of their regular annual bonus, recognizing their contributions to the company’s success.