Microsoft revenue up 13% to $38B as stay-at-home orders boost cloud and games businesses

Microsoft CEO Satya Nadella, at a past shareholder meeting. (GeekWire Photo / Todd Bishop)

Microsoft posted revenue of $38 billion, up 13%, beating Wall Street’s expectations for its fiscal fourth quarter ended June 30.

The COVID-19 pandemic and related stay-at-home orders boosted the company’s productivity, cloud and gaming businesses, including subscription versions of Microsoft Office, and the Microsoft Azure cloud platform. Revenue from Xbox content and services was up 68% for the quarter.

However, traditional Office software licensing continued to suffer, and the company said LinkedIn and search advertising were impacted negatively due to the slowdown in jobs and the economy.

The company’s profits fell 15% to $11.2 billion, reflecting a $450 million charge from closing Microsoft Stores and an unusual $2.6 billion tax benefit in the prior year.

Excluding extraordinary events and charges, profits would have been up 5% for the quarter, the company said. Its earnings per share of $1.46 beat expectations of $1.37/share.

Microsoft shares are down more than 2% in after-hours trading. Revenue growth in Azure was 47%, a smaller percentage increase than in recent quarters.

The company said its annual commercial cloud revenue exceeded $50 billion for the first time, up 31% from the prior year. Commercial cloud includes Office 365 Commercial, Microsoft Azure, and commercial portions of LinkedIn, Dynamics 365 and other Microsoft cloud businesses.

Microsoft’s earnings conference call starts at 2:30 p.m. Pacific time. Analysts are likely to press Microsoft CEO Satya Nadella about the antitrust complaint that Slack filed against the Redmond company in Europe this morning over Microsoft’s bundling of its Teams collaboration software with its Office 365 subscriptions.

Here are the trends in the company’s three primary divisions:

Productivity and Business Processes: Revenue rose 6% to $11.75 billion. Operating income fell 9% to $3.97 billion.

Office 365 Commercial revenue was up 19%, reflecting growth in software and services subscriptions for businesses. However, traditional Office Commercial licensing revenue declined 34%, reflecting the difficult economy and the ongoing shift to cloud-based subscriptions.

Office Consumer revenue rose 6%, also due to subscription growth, and the number of total Office 365 subscribers rose 23% to 42.7 million.

Intelligent Cloud: Revenue rose 17% to $13.37 billion. Operating income rose 19% to $5.34 billion.

Server products and cloud services revenue rose by $1.9 billion to 19%, due largely to the 47% increase in Azure revenue.

Azure growth was “primarily driven by growth in our consumption-based services,” the company said in its earnings release. “Server products revenue was relatively unchanged, with growth in hybrid and premium solutions, offset by a slowdown in transactional licensing.”

More Personal Computing: Revenue rose 14% to $12.9 billion. Operating income rose 15% to $4.1 billion.

Windows revenue was up 6% overall, due in part to “consumer demand from remote work and learn scenarios, including the benefit in April from unfulfilled third quarter demand,” the company said.

Gaming revenue rose 64%, or $1.3 billion. The company said the increased in Xbox content and services revenue was “primarily due to record engagement, including strength from third-party titles, as stay-at-home guidelines continued. Xbox hardware revenue increased 49%, primarily due to an increase in volume of consoles sold.”

Microsoft revenue up 13% to $38B as stay-at-home orders boost cloud and games businesses Microsoft revenue up 13% to $38B as stay-at-home orders boost cloud and games businesses Reviewed by TechCO on 7/23/2020 Rating: 5

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