Microsoft reported its financial performance for the fiscal fourth quarter, which ended on June 30. The tech behemoth reported earnings per share (EPS) of $2.95, slightly above the analyst expectations of $2.93. The company’s revenue reached $64.73 billion, surpassing the anticipated $64.39 billion. These figures represent a 15% increase in revenue year-over-year. Its net income also saw a rise, climbing to $22.04 billion from $20.08 billion, translating to $2.69 per share in the previous year.
The firm’s operating income for the same period rose by 10% to amount to $27.9 billion. Looking ahead, Microsoft projected its fiscal first-quarter revenue to be between $63.8 billion and $64.8 billion. This range suggests a 13.8% growth at the midpoint, though it falls short of the analysts’ expectation of $65.24 billion. Microsoft’s shares experienced a significant drop of up to 7% in extended trading on Tuesday, and are currently placed at $422.92.
“Our strong performance this fiscal year speaks both to our innovation and to the trust customers continue to place in Microsoft,” Satya Nadella, chairman and CEO of Microsoft, commented on the matter. “As a platform company, we are focused on meeting the mission-critical needs of our customers across our at-scale platforms today, while also ensuring we lead the AI era.”
Despite the company’s impressive earnings and revenue figures, investor concerns were heightened due to disappointing results from the cloud segment. Microsoft’s Intelligent Cloud segment, a key driver of its business, reported revenue of $28.52 billion. This segment includes the Azure public cloud, Windows Server, Nuance, and GitHub. Despite a 19% year-over-year increase, the revenue fell short of the $28.68 billion consensus among analysts. Azure and other cloud services grew by 29% during the quarter, missing the expected 31% growth. This shortfall in Azure’s performance was notable as it marked the first time since 2022 that Azure did not meet the consensus expectations.
Still, GitHub’s revenue, now at an annual run rate exceeding $2 billion, was a highlight in the cloud segment. Nadella spoke about the impact of AI services on Azure’s growth, contributing 8 percentage points to the overall 29% increase. However, CFO Amy Hood pointed out that the demand for Azure AI services surpassed the available capacity, particularly in some European regions. Microsoft’s cloud business currently competes with the likes of Amazon Web Services (AWS) and Google in the AI-driven market. All three tech giants are heavily investing in AI capabilities to attract both startups and large enterprises. AWS has long been a significant profit driver for Amazon.
Coming to Microsoft’s gaming segment, we find that it continued to thrive, with over 500 million monthly active users across various platforms following the Activision Blizzard acquisition. Xbox content and services revenue, including Game Pass, rose 61%, significantly boosted by Activision Blizzard revenues. In terms of hardware, Microsoft launched AI-integrated Surface PCs and saw modest improvements in device revenue. However, overall Surface revenue declined for the seventh consecutive quarter. New product launches, including the Surface Laptop and Surface Pro, are expected to impact future quarters positively.
The Productivity and Business Processes unit, which includes Office software and LinkedIn, reported $20.32 billion in revenue, up 11% and exceeding the $20.13 billion consensus. The More Personal Computing unit, encompassing the Windows operating system, gaming, devices, and search advertising, generated $15.90 billion, surpassing the $15.49 billion expectation and marking a 14% year-over-year increase. The PC market showed signs of stabilization, with Windows license sales to device makers rising by 4%. Gartner reported a 1.9% increase in PC shipments during the quarter, indicating a recovery from previous declines.
