Microsoft just released their fiscal financial figures for the second quarter of 2024. In Q2, the software company brought in $62 billion and earned $21.9 billion in net profits. Net income has grown by 33% while revenue has climbed by 18%.
This quarter marks two firsts for Microsoft: it is the first the $3 trillion firm has declared earnings, and it is also the first time the corporation has disclosed extra income from the Activision Blizzard acquisition. With this extra cash, gaming is now Microsoft’s third-largest business this quarter, behind only Windows.
Office and cloud revenue continues to dominate, accounting for around 60% of Microsoft’s total income. The income from Windows OEM sales is increasing, while Surface sales revenue from devices has decreased this quarter.
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Microsoft did provide a warning that device revenue will fall this quarter, and it has decreased by 9%. During a recent earnings call, Amy Hood, the CFO of Microsoft, stated that “stronger execution in the commercial segment” was the reason this exceeded the company’s expectations. Revenue from devices is predicted to drop by “low double digits” in Q3, 2024.
Surface has probably not recovered as well as PC market unit numbers, since Microsoft CEO Satya Nadella stated last quarter that “PC market unit volumes were at roughly pre-pandemic levels.” This is true even though Microsoft introduced the Surface Go 4, Surface Laptop Studio 2, and Surface Laptop Go 3 late in the previous year. HoloLens and PC accessories are included in Microsoft’s device revenue, which has been falling for more than a year.
However, Windows is doing better. The amount that PC makers pay Microsoft to install Windows on laptops and PCs, or OEM revenue, increased by 11% this quarter. Throughout Microsoft’s whole fiscal year 2023, Windows OEM revenue has decreased; however, this is the second quarter in a row that revenue has increased, as opposed to five quarters in a row that revenue from devices has decreased. Hood anticipates “relatively flat” revenue for Windows OEMs in the upcoming quarter.
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Speaking of gadgets, everyone is focusing on Microsoft Gaming’s most recent financial results. Activision Blizzard income is now included in Microsoft’s gaming segment, which boosts Xbox content sales overall.
Revenue from Xbox content and services, which includes Xbox Game Pass, has increased by a staggering 61 percent. That’s mostly due to Activision Blizzard’s earnings, so it’s hard to say how Xbox managed without this enormous acquisition right away.
Microsoft claims that the Activision Blizzard purchase would result in little over $2 billion in net sales, but the integration, transaction, and other revenue-related expenditures will come to $930 million. An operational deficit of $440 million results from additional operating expenditures of $1.59 billion.
Microsoft fired 1,900 employees in its gaming company earlier this month, largely Activision Blizzard personnel, despite the completion of the Activision Blizzard merger. Additionally, in recent months, Microsoft has reorganised the Xbox executive team. Earlier this week, a new president of Blizzard was chosen.
In addition, Xbox hardware has increased by 3% following the crucial Christmas period. Microsoft appears not to have seen a significant increase in sales or income after running many Xbox Series X promotions during the US holidays.
A “weaker than expected console market” was Hood’s reason. Microsoft’s overall gaming revenue has increased by 49%, mostly due to Activision Blizzard’s higher-than-expected sales.
With gaming now ranking as Microsoft’s third-largest business, this is a significant quarter for the industry. More than the $5.26 billion from Windows, gaming brought in $7.11 billion in revenue for the quarter. However, it lagged behind the $13.47 billion from Office and cloud services, and the enormous $23.95 billion from server goods and cloud services.
Once more, the number of new Xbox Game Pass subscribers is zero. Although Microsoft claimed that Xbox Game Pass has 25 million members as of January 2022, there hasn’t been a new release in the past two years. During the previous quarter’s earnings call, Nadella did disclose that Xbox Game Pass growth was aided by Starfield. “We broke the record for the highest number of Game Pass subscriptions added in a single day at launch,” he stated.
Activision Blizzard accounts for 45 points of the entire gaming revenue growth that Microsoft CFO Amy Hood predicts. This implies that income from Microsoft’s other gaming initiatives may decline the next quarter. The Activision Blizzard purchase is estimated to have a net impact of around 50 points in Q3, accounting for “low to mid 50” percent of Xbox content and services. For Q3, Hood predicts that “[Xbox] hardware revenue will decline year-over-year.”
The Office business unit of Microsoft is operating profitably once more, with productivity and business procedures contributing to a 13% increase in revenue year over year. Office 365 was the primary driver of this, accounting for 9% of the increase in business seats.
There are currently 78.4 million Microsoft 365 Consumer users, a nearly 16 percent increase from the previous year. Last year, Microsoft introduced the $1.99/month Microsoft 365 Basic membership, which has continued to increase the total number of users.
Thanks to Office 365 Commercial’s 17% sales growth, revenue from cloud services and office commercial products increased by 15% annually. Accordingly, Microsoft had more than 400 million Office 365 paid commercial seats at the end of this quarter, indicating that the corporation is still pushing companies to use Office in the cloud.
In recent months, Microsoft has also started to offer Copilot for Microsoft 365; however, the firm has not disclosed how selling AI add-ons is affecting its income. In the Microsoft earnings statement, CEO Satya Nadella states, “We’ve moved from talking about AI to applying AI at scale.” “We are gaining new clients and assisting in the creation of new benefits and productivity gains across all industries by integrating AI into every layer of our tech stack.”
Azure OpenAI investments made by Microsoft on the server side will have a greater influence on the company’s AI goals. According to James Ambrose, Microsoft’s director of investor relations, “Azure and other cloud services was up 30 percent year-over-year… those growth rates include a six point contribution from our AI services” on a call with The Verge.