Table of Contents
a. Key Points
Continued rapid Azure growth at massive scale.
OpenAI is now 45% of its total backlog.
Raised annual EBIT margin guidance.
Fabric crossed a $2B run rate 2 years after launching.
Noisy guidance.
b. Demand
Revenue beat estimates by 1.2% and beat guidance by 1.5%.
Foreign exchange (FX) boosted results by a bit less than expected.
Intelligent cloud (IC) revenue beat estimates by 1.5% and beat guidance by 1.5%.
38% constant currency (CC) Azure growth beat 37% growth guidance thanks to a bit more capacity flexibility than expected. This growth met estimates and missed some higher buy-side expectations.
Microsoft cloud crossed $50B in revenue for the quarter.
Productivity & Business Processes (PBP) revenue beat estimates by 1.9% and beat guidance by 1.9%.
14% CC Microsoft 365 Commercial Cloud growth beat 13.5% growth guidance.
27% CC Microsoft 365 Consumer Cloud growth met or beat mid-20% growth guidance.
17% CC Dynamics 365 growth met mid-to-high teens growth guidance.
10% LinkedIn growth met guidance.
Personal Computing slightly missed estimates and slightly beat guidance.
9% CC Search and news ad revenue growth missed MSFT guidance and execution was called disappointing by the team.
Gaming revenue also slightly missed their own expectations due to slight 1st–party content weakness.
The Windows OEM business enjoyed a bit of help from customer inventory pull forward to get ahead of memory price hikes.
Unearned revenue missed estimates by 2%.
Commercial bookings rose by 230% or 228% CC. This was related to a large deal signed with OpenAI and a previously announced Anthropic deal. Healthy growth elsewhere also helped but those two items (and especially OpenAI this quarter) boosted numbers a lot more.
c. Profits & Margins
Beat 67% cloud GPM estimates by a point and beat 66% cloud GPM guidance by 2 points.
This continues to be pressured by heavy AI investments. Some efficiency gains offset part of this headwind.
They expect the AI margin drag to remain in place for a while, but for leverage to kick in down the road once CapEx growth slows and supply chains find equilibrium.
Beat EBIT estimates by 4.7% and beat guidance by 4.8%.
EBIT margins beat general company guidance.
OpEx rose by just 4% CC Y/Y. EBIT +21% Y/Y (19% CC)
Beat $3.92 EPS estimates by $0.22 excluding gains from OpenAI’s recapitalization.
EPS +24% Y/Y (21% CC).
Beat operating cash flow estimates by 23%, but CapEx was $6B higher than $23.8B expectations, which led to FCF missing estimates by 20%.
d. Balance Sheet
$89.3B in cash & equivalents.
$21B in equity investments.
$40B in long-term debt.
Diluted share count fell slightly Y/Y.
e. Guidance & Valuation
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