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October 24, 2019

Microsoft Earnings Outperform Expectations, Even as Azure Growth Slows

“We are accelerating our innovation across the entire tech stack"

By CBR Staff Writer

Microsoft’s management are likely to be feeling the buzz this morning, as quarterly results exceeded expectations, and net income hit $10.7 billion for the quarter – up  21 percent year-on-year – despite falling Azure revenue growth.

Commercial cloud revenue for the Redmond firm hit $11.6 (£8.9) billion for the quarter; growth of 36 percent year-on-year. Microsoft’s operating expenses also climbed to $9.9 billion for the quarter, which featured 77 new product/feature releases.

See also: Introducing Windows 10X: MSFT’s Containerised New OS

Azure’s revenue grew by 59 percent year-on-year (down from 64 percent last quarter) as server products and cloud services increased by 30 percent. Microsoft’s CEO Satya Nadella during a call with investors commented that: “The quintessential characteristic of every application going forward will be AI.

“Azure AI now has more than 20,000 customers, and more than 85 percent of the Fortune 100 companies are using Azure AI in the last 12 months.”

Microsoft Q1 2020 Revenue

Microsoft Q1 2020

Credit: Tadas Sar via Unsplash

Microsoft’s total revenue for the quarter stood at £25.6 ($33.1) billion up 14 percent y/y. During this quarter Microsoft opened new datacentres regions in Germany and Switzerland, while Microsoft’s cloud push into India is being enabled by its partnership with local telecommunications company Jio, which is helping them target small business in the region.

Sales of Surface hardware dropped by four percent which the company blames on “product lifecycle transitions” – the company recently unveiled a host of new Surface products, but many are landing in 2020.

Office 365 and Acquisitions

Office 365 continues to be a money spinner for the company as revenue grew by 25 percent, with consumer subscribers to Office 365 hitting 35.6 million.

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Continued investment into LinkedIn and cloud engineering has caused operating expenses to increase, but the investment looks to be paying off: LinkedIn’s revenue grew a standout 25 percent year-on-year. The platform now has over 650 million members; an inviting corporate advertising market.

GitHub which Microsoft acquired for £5.6 billion last year, also grew strongly: the software development and code repository is now home to 40 million developers, a rise of 30 percent. Microsoft says that over two million organisations use the platform and points to the Ford Motor Company where 8,000 employees use GitHub to collaborate.

Gaming

Microsoft Q1 2020

Credit: Kote Puerto via Unsplash

Microsoft’s revenue streams from its gaming division have declined by seven percent. This downturn is a result of low Xbox consoles sales. CFO Hood noted that: “We expect revenue to decline in the mid-20 percent range.”

Both Sony (PS4) and Microsoft’s current console hardware is reaching the end of its lifecycle and both firms are preparing to launch the next generation of consoles in 2020.

Revenue from Xbox content and services, (game sales and subscriptions), is holding steady with an increases of one percent. This incremental rise appears to be attributed to continued growth of the videogame Minecraft, which Microsoft bought for £1.9 billion in 2014. CEO Nadella notes that: “10 years in Minecraft is stronger than ever with record revenue and usage.” Gears of War 5 and Game Pass subscriptions are also contributing to steady sales.

Surprisingly very little was mentioned or teased about Project xCloud, the firm’s cloud computing offering, with CEO Nadella briefly mention that they have just started trials.

In a release Satya Nadella concludes that: “We are accelerating our innovation across the entire tech stack to deliver new value for customers and investing in large and growing markets with expansive opportunity.”

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