The News: Microsoft announced its third quarter (Q3) fiscal year (FY) 2024 earnings last week, led by overall revenue of $61.9 billion, up 17% compared with the same quarter a year ago and exceeding the $60.8 billion expected by analysts.
The quarter was marked by strong revenue growth across several segments. In particular, Microsoft saw strong revenue within its Intelligent Cloud, Productivity and Business Processes, and More Personal Computing segments, each of which posted double-digit growth rates compared with the same period a year ago. Underpinning all segments has been Microsoft’s strong focus on incorporating artificial intelligence (AI) across all of its platforms and applications to make them easier to use across a wide range of industries and use cases. You can read the original earnings press release on the Microsoft website.
By the numbers:
- Diluted earnings per share (EPS): $2.94 vs. $2.82 expected, up 20% year-over-year (YoY)
- Revenue: $61.86 billion, up 17% YoY vs. $60.80 billion expected
- Operating income: $27.6 billion, up 23% YoY
- Net income: $21.9 billion, up 20% YoY
- Intelligent Cloud segment revenue: $26.71 billion, up 21% YoY, and beating the StreetAccount analyst consensus estimate of $26.26 billion
- Productivity and Business Processes segment revenue: $19.57 billion, up about 12% YoY, and beating the StreetAccount consensus estimate of $19.54 billion
- More Personal Computing segment revenue: $15.6 billion, up 17% YoY, including the following subsegments:
- Windows revenue increased 11%, with Windows OEM revenue growth of 11% and Windows Commercial products and cloud services revenue growth of 13%, up 12% in constant currency (CC)
- Devices revenue decreased 17%, down 16% in CC
- Xbox content and services revenue increased 62% (up 61% in CC) driven by 61 basis points of net impact from the Activision acquisition
- Search and news advertising revenue excluding traffic acquisition costs increased 12%
Microsoft Q3 FY 2024 Earnings: Revenue Up 15% Year over Year
Analyst Take: Microsoft announced its Q3 FY 2024 earnings last week, which featured strong growth across total revenue and several business units, reflecting the company’s overall good financial health and strong demand for its business, consumer, cloud, and AI products and services. The company posted total revenue of $61.9 billion for the quarter, reflecting an increase of 17% over the same period a year ago. Net income, which came in at $21.94 billion, or $2.94 per share, was up from $18.30 billion, or $2.45 per share in the year-ago quarter.
Cloud and AI Remain a Driver of Microsoft’s Continued Growth
Microsoft, like other large SaaS players, has seen strong momentum from companies seeking to move data and applications to the cloud. Microsoft’s Intelligent Cloud segment, which includes Azure public cloud, Windows Server, Nuance and GitHub, generated $26.71 billion in revenue, which was up about 21% YoY, and beat the StreetAccount analyst consensus estimate of $26.26 billion in quarterly revenue. Revenue solely generated from Azure and other cloud services increased by 31%, besting the 30% increase from the previous quarter, and beating the StreetAccount analysts’ consensus estimate of 28.6% growth. According to Microsoft, within the Azure growth, 7 percentage points were related to AI, up from 6 points of impact in the previous quarter. Indeed, Microsoft’s GitHub Copilot code-generation tool now has 1.8 million paid subscribers, CEO Satya Nadella said on a conference call with analysts, reflecting the strong demand among corporate customers for generative AI (GenAI) technology.
Productivity Software Continues to Contribute to Microsoft’s Bottom Line
The Productivity and Business Processes unit containing Office productivity software, LinkedIn, and Dynamics customer-relationship management (CRM) software generated $19.57 billion in revenue, up about 12%, besting the StreetAccount analysts’ consensus figure of $19.54 billion. The Q3 FY 2024 period marks the first full quarter of sales of the Copilot add-on for commercial Microsoft 365 subscriptions, which utilizes AI models from OpenAI, in which Microsoft partnered and invested billions of dollars.
Within the segment, Office Commercial products and cloud services revenue increased 13% (up 12% in CC), which was driven by Office 365 Commercial revenue growth of 15% YoY. Meanwhile, Office Consumer products and cloud services revenue increased 4%, with the Microsoft 365 Consumer subscriber count growing to 80.8 million.
LinkedIn revenue also featured healthy growth of 10% YoY, and up 9% in CC. Microsoft Dynamics products and cloud services revenue increased 19% (up 17% in constant currency), largely powered by Dynamics 365 revenue growth of 23% (up 22% in CC).
Microsoft’s More Personal Computing revenue totaled $15.58 billion, up 17% and above the StreetAccount analysts’ consensus estimate of $15.08 billion. The segment includes revenue generated by sales of the Windows operating system (OS), Surface PCs, video games, and search. Revenue from Xbox content and services rose 62%, largely due to the $75 billion Activision acquisition in October 2023. However, a closer look into the segment revenue reveals that revenue from Xbox and Surface hardware is down significantly for the quarter. Microsoft is expected to announce Snapdragon X Elite and X Plus chips will be incorporated into the Surface platform this month. Should these chips deliver on their promise of better performance and battery life, which are key purchase drivers for these devices, it could help reverse the decline in hardware revenue growth over time.
Q4 2024 Guidance Comes in Under Analysts’ Forecast
Microsoft’s finance chief Amy Hood said on the analyst earnings call that Microsoft expects $64 billion in revenue for the fiscal fourth quarter (Q4) of 2024, which is below the $64.5 billion LSEG consensus. Hood noted that current AI demand is outstripping Microsoft’s capacity to provide products and services, which will impact future revenue. However, Hood noted that the company has been increasing its capital expenditures to secure NVIDIA graphics processing units (GPUs) for training and running AI models.
Microsoft’s Future Appears Bright Thanks to Industry Tailwinds and Solid Execution
Microsoft posted another strong quarter, with each major segment contributing healthy growth figures. The company has had success in rolling out its Copilot add-ons, which not only contribute to strong revenue growth but also cement Microsoft as an organization that has been able to identify use cases for AI that resonate with customers, and, most importantly, deliver value.
It is still early in the GenAI era to determine whether Microsoft’s pricing approach will continue to pay off in the long run, but to date, the company has executed on its strategy of highlighting the advanced capabilities of Copilot and charging for the service.
The tailwinds around GenAI and cloud migration are clearly helping Microsoft, but the company is also doing a good job of balancing accessibility of basic features against a need to generate and tie revenue to the most powerful – and compute-hungry – GenAI technology. This balancing act will be key to ensuring that Microsoft can continue to innovate while not alienating its large base of customers who expect a certain level of innovation built into the products, without massive upcharges.
Daniel Newman and his co-host of The Six Five Webcast, Patrick Moorhead of Moor Insights and Strategy discusses Microsoft’s earnings in their latest episode. Check it out here and be sure to subscribe to The Six Five Webcast so you never miss an episode.
Disclosure: The Futurum Group is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The authors do not hold any equity positions with any other company mentioned in this article.
Analysis and opinions expressed herein are specific to the analyst individually and data and other information that might have been provided for validation, not those of The Futurum Group as a whole.
Other Insights from The Futurum Group:
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Author Information
Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.
From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.
A 7x Best-Selling Author including his most recent book “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor.
An MBA and Former Graduate Adjunct Faculty, Daniel is an Austin Texas transplant after 40 years in Chicago. His speaking takes him around the world each year as he shares his vision of the role technology will play in our future.
Keith has over 25 years of experience in research, marketing, and consulting-based fields.
He has authored in-depth reports and market forecast studies covering artificial intelligence, biometrics, data analytics, robotics, high performance computing, and quantum computing, with a specific focus on the use of these technologies within large enterprise organizations and SMBs. He has also established strong working relationships with the international technology vendor community and is a frequent speaker at industry conferences and events.
In his career as a financial and technology journalist he has written for national and trade publications, including BusinessWeek, CNBC.com, Investment Dealers’ Digest, The Red Herring, The Communications of the ACM, and Mobile Computing & Communications, among others.
He is a member of the Association of Independent Information Professionals (AIIP).
Keith holds dual Bachelor of Arts degrees in Magazine Journalism and Sociology from Syracuse University.
