Microsoft topped Wall Street estimates for its fiscal first quarter, reporting $37.2 billion in revenue, up 12% year-over-year, and profit of $1.82 per share ($13.9 billion), up 47%. Analysts were expecting revenue of $35.7 billion and EPS of $1.54.
The Redmond, Wash.-based company’s cloud arm continues to power its business, particularly in recent months amid a pandemic that has increased demand for its products and services.
“The next decade of economic performance for every business will be defined by the speed of their digital transformation,” Microsoft CEO Satya Nadella said in a statement. “We are innovating across our full modern tech stack to help our customers in every industry improve time to value, increase agility, and reduce costs.”
Microsoft splits the company into three main areas in its earnings reports.
Q1 FY21 revenue by segment
? Productivity & Business Processes: $12.3 billion ⬆️ 11%
?️ Intelligent Cloud: $13.0 billion ⬆️ 20%
? More Personal Computing: $11.8 billion ⬆️ 6%— Micros?ft (@Microsoft) October 27, 2020
Revenue from the company’s Intelligent Cloud division came in at $13 billion, up 20%, thanks to Azure revenue growth of 48%, which beat analyst expectations and was up slightly from the 47% growth clip last quarter. Server products and cloud services increased 22%.
Commercial cloud revenue was up 31% to $15.2 billion. Commercial cloud includes Office 365 Commercial, Microsoft Azure, and commercial portions of LinkedIn, Dynamics 365 and other Microsoft cloud businesses.
Analysts keep a close eye on the company’s cloud division, and especially the Azure growth rate, which had been declining in past quarters. Dan Ives, an analyst with Wedbush, cited strong Azure deal activity as more companies accelerate their digital transformation and cloud strategy.
“For Redmond, this cloud shift and WFH dynamic looks here to stay and the company stands to be a major beneficiary of this trend on its flagship Azure/office 365 franchise over the coming years,” Ives said in a research note today.
Microsoft still trails Amazon Web Services in cloud infrastructure market share but is gaining ground. AWS had a 45% share at the end of 2019, down from 47.9% in 2018, while Microsoft grew its share from 15.6% to 17.9%, according to Gartner. The overall market grew 37.3% in 2019 to $44.5 billion.
Revenue from the company’s Productivity and Business Processes division, which includes Office 365 and LinkedIn, was up 11% over last year to $12.3 billion in the quarter. Office Commercial products and cloud services revenue was up 9%, with Office 365 Commercial revenue up 21%.
Office Consumer products and cloud services grew 13%, as Microsoft 365 Consumer subscribers increased to 45.3 million, up from 35.6 million a year ago. Revenue from LinkedIn grew 16% percent. Dynamics products and cloud services revenue was up 19%; Dynamics 365 revenue was up 38%.
Revenue in the company’s More Personal Computing division, which includes its Windows PC business, Surface products and gaming teams, jumped 6% over last year to $11.8 billion. Windows OEM revenue was down 5% amid end of support for Windows 7 and IT spending shifting away from hardware. Windows Commercial products and cloud services revenue grew 13%.
Xbox content and services was up 30%; Microsoft said in September that Game Pass subscribers jumped 50% from April to 15 million. Surface revenue grew to $1.55 billion, up 37%. Search advertising revenue, excluding traffic acquisition costs, was down 10%.
“Surface had a blowout quarter (+37%) and is a good representation of the strength of its portfolio, demand and its ability to fulfill that demand,” said Patrick Moorhead of Moor Insights & Strategy.
Other tailwinds driven by the pandemic helping boost Microsoft’s revenue include rising PC shipments, which are hitting decade-highs this year, and increased gaming activity.
It was a busy quarter for Microsoft. The company debuted the new Surface Duo device; rolled out several new features for its Teams collaboration app; lost out on a bid to buy TikTok; and announced the acquisition of ZeniMax, the parent company of Bethesda Softworks, which develops The Elder Scrolls, Fallout, Wolfenstein, DOOM, and other top video game franchises. Microsoft is set to debut its new Xbox console next month.
The tech giant earlier this month revealed a new “hybrid workplace” policy that laid out how employees can have a more flexible remote work schedule and even relocate elsewhere in the country.
Microsoft stock was flat in after-hours trading. Shares are up about 33% this year, currently trading at $213.
Microsoft will hold its earnings call at 2:30 p.m. PT — via Microsoft Teams, of course.
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