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Microsoft Revenue Hits $52.7B for Q2 FY23, Up 2% YoY

The News: Microsoft revenue rose in the second quarter of fiscal year 2023 to $52.7 billion, up two percent from $51.7 billion one year ago, as the software giant announced its Q2 FY2023 earnings figures on January 24 for the period ending December 30, 2022. Microsoft’s non-GAAP diluted earnings per share price of $2.32 for Q2 beat analyst estimates of $2.29 as the company, and its competitors in the tech marketplace, continues to be affected by difficult global economic conditions and market volatility. Read the full Q2 FY23 earnings Press Release on the Microsoft Investor Relations website.

Microsoft Revenue Hits $52.7B for Q2 FY23, Up 2% YoY

Analyst Take: Microsoft delivered a very good quarter, even though Microsoft’s revenue of $52.7 billion slightly missed analyst estimates of $52.96 billion for Q2. On the plus side, earnings per share for Q2 beat analyst estimates and the company saw better than expected cloud revenue and growth numbers.

Overall, the latest Microsoft earnings figures show that the outlook for the technology industry is better than most people want to admit, outside of certain consumer elements which were down for the quarter. For Microsoft, the effects of consumer sales slowdowns are not as concerning because Microsoft benefits from its broad diversification.

Here are Microsoft’s latest Q2 financial results by the numbers:

  • Q2 FY23 revenue of $52.7 billion, up two percent from $51.7 billion for the same quarter one year ago. The Q2 FY23 revenue figure was slightly below an average analyst consensus estimate of $52.96 billion expected by analysts at Yahoo Finance.
  • Q2 FY23 GAAP net income of $16.4 billion, down 12 percent from $18.7 billion one year ago.
  • Q2 FY23 GAAP operating income of $20.4 billion, down eight percent from $22.2 billion one year ago.
  • Q2 FY23 non-GAAP diluted earnings per share (EPS) of $2.32, down six percent from one year ago. The EPS beat an average analyst consensus estimate of $2.29 per share that was expected by analysts at Yahoo Finance.

As we have said before, Microsoft provides a good barometer of where the economy and the tech world are as a whole, which is watched by investors and competitors alike. At this moment, Microsoft revenue and other earnings figures are generally positive and show further growth potential, especially in cloud and enterprise segments.

Microsoft’s earnings announcement comes just one week after the company announced layoffs of approximately 10,000 workers, following the recent pattern of a host of other tech companies that are also shedding employees as the pandemic business boom – which brought increased hiring and sales due to work from home – continues to recede. Microsoft’s estimated layoffs amount to about five percent of its estimated 221,000 global employees as of last June.

Microsoft Revenue by Segment

By segment, Microsoft earnings figures generally showed healthy growth in Q2.

Microsoft’s Intelligent Cloud revenue rose 18 percent to $21.5 billion, up from $18.2 billion one year ago. In that division, server products and cloud services revenue increased 20 percent from a year ago, boosted by a 31 percent rise in Azure and other cloud services revenue growth.

Microsoft’s Productivity and Business Processes segment revenue hit $17 billion, up seven percent from $15.9 billion one year ago. In that division, Office Commercial products and cloud services revenue rose by seven percent, which included an 11 percent rise in revenue growth for Office 365 Commercial products. Also seeing a revenue increase in this division were Microsoft Dynamics products and cloud services revenue, which rose 13 percent with the help of Dynamics 365 revenue growth of 21 percent.

Seeing a decline in the segment was Office Consumer products services revenue, which was down two percent from a year ago.

Two other bright spots in the segment were that Microsoft 365 Consumer subscribers grew to 63.2 million and Microsoft’s LinkedIn revenue rose by 10 percent.

In Microsoft’s More Personal Computing segment, revenue fell to $14.2 billion, a 19 percent decrease from $17.5 billion one year ago. Also in this division, Windows OEM revenue fell by 39 percent and Windows Commercial products and cloud services revenue fell by three percent. Gaming revenue was also hit as Xbox content and services revenue fell 12 percent. Search and news advertising revenue rose by 10 percent, while device revenue fell by 39 percent from a year ago.

These results again show the effectiveness of Microsoft’s strategy of diversifying its business portfolio across the enterprise, cloud, and consumer markets to balance its performance and risks in the global economy. It is a wise strategy and one that is clearly paying off.

Microsoft also continues to show its financial discipline to weather the difficult ongoing macroeconomic conditions of the last several years, while managing its costs and growing its opportunities where customers are showing increased demands. We continue to maintain that this is a smart strategy by a dominant technology powerhouse.

Satya Nadella, Microsoft’s chairman and CEO, reiterated in the company’s earnings call on Jan. 24 that Microsoft is “committed to helping our customers use our platforms and tools to do more with less today and innovate for the future in the new era of AI.”

“Do more with less,” he said. We believe that this is a positive and reassuring message from the company’s leader and one that shows that Microsoft continues to listen to what its customers and the market are demanding from vendors across the tech space.

Microsoft Revenue Guidance

Microsoft also provided some earnings guidance for its business segments for the third quarter of 2023.

In the Intelligent Cloud segment, Microsoft expects revenue to grow between 17 and 19 percent, which would amount to about $21.7 billion to $22 billion.

The Productivity and Business Processes segment is expected to see revenue growth of 11 to 13 percent, which would amount to about $16.9 billion to $17.2 billion.

In the Office Commercial segment, Office 365 revenue growth is expected to be sequentially lower by about one point, while its on-premises business is expected to decline in the mid-20s.

The consumer Office segment is expected to see revenue growth in the low-single digits, driven by Microsoft 365 subscriptions.

The company’s LinkedIn unit is expected to see mid-single digit revenue growth, though it will be impacted by slower advertising trends and a slowdown in hiring in the technology industry.

In the Microsoft Dynamics segment, revenue growth in the low to mid-teens is expected in Q3, driven by ongoing growth in Dynamics 365 which is now over 80 percent of total Dynamics revenue.

Microsoft said that ongoing foreign currency exchange (FX) fluctuations are now expected to decrease total Q3 revenue growth by approximately three points and operating expense growth by two points. The company said it expects about four points of negative FX impact on revenue growth in its Productivity and Business Processes segment, three points in its Intelligent Cloud division, and two points in its More Personal Computing division.

The company also said that it expects that its consumer business, including its Windows OEM and Devices division, will see continuing declines as the PC market returns to pre-pandemic levels after rapid growth during the pandemic and work from home demand.

In Microsoft’s Gaming division, the company said it expects revenue to decline by the high-single digits, including Xbox content and services revenue reductions.

It’s worth noting that the slowing of its growth alarmed some investors but with innovation and investment along with the likely cyclical nature of the downturn all will be well in the long term for Microsoft.

Microsoft Revenue Overview

It is an interesting time for Microsoft and other technology companies. As enterprise tech continues to separate itself in the market from consumer tech, enterprises are demanding that their tech vendors provide ever-broader capabilities including automation, analytics, cloud, and other transformational technologies that can streamline and transform their businesses.

Enterprise customers are looking for technologies that are ready now and that show quick results as companies find their own ways through challenging economic times.

To provide that kind of help, Microsoft stands ready with its broad product portfolio, including its powerful and flexible Azure cloud offerings, which has helped propel Microsoft’s continued success in the marketplace.

It will be interesting to watch Microsoft’s performance throughout the rest of 2023 as macroeconomic headwinds continue to shift for all businesses around the globe. We remain confident in Microsoft’s abilities and future as it continues its impressive performance in the world’s tech marketplace.

Disclosure: Futurum Research 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 author does not hold any equity positions with any 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 Futurum Research as a whole.

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Image Credit: Morningstar

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.

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