Microsoft
Microsoft presents results for its last fiscal quarter: very good in video games and services, bad in hardware
Profits in the video games division grow with the acquisition of Activision Blizzard, but console sales decline.
All is well at Microsoft, would be the summary of the analysis of the fourth and last fiscal quarter of 2024, which ends in the accounts of the Redmond company on June 30. The company is experiencing profit growth in virtually all areas, leaving an overall balance sheet that is clearly positive.
Fourth quarter results
- Revenues: 56.2 billion, an increase of 10% over the same period last year.
- Operating income: $24.7 billion, up 18%.
- Net income: $20.1 billion, up 20%.
- Diluted earnings per share: $2.69, an increase of 21%.
Full year results
- Revenues: $211.7 billion, an increase of 8% over the prior year.
- Operating income: $87.5 billion, up 15%.
- Net income: $71.3 billion, up 14%.
- Diluted earnings per share: $9.43, an increase of 15%.
To no one’s surprise, the apple of the eye continues to be the overall cloud business in Microsoft’s Intelligent Cloud division, which is up 19% and now accounts for 45% of the company’s overall profits. Profits from Azure and other cloud services are up 29%, which should be positive by any measure, but is less than the headline that analysts had ventured, causing the company’s stock to fall after the report (welcome to 21st century capitalism: nothing is ever enough). Services like Office grew profits by 3%, Microsoft 365 grew by 10%, and Linkendin also improved its data by 10%. Artificial intelligence remains an unknown quantity going forward, but Chief Financial Officer Amy Hood predicts that the benefits surrounding it will be felt especially in the first quarter of 2025, when the infrastructure needed to support it will trigger demand, in what is estimated to be a 28 to 29 percent growth.
What about Xbox?
Well, thank you, at least in part. As a division, the content and services side of Xbox is up 61%, a spectacular figure almost entirely due to the now effective addition of Activision Blizzard to the company (without it, growth would have been 3% year over year). The other side of the coin, however, is that hardware sales are worryingly poor. Profits from Xbox hardware sales are down 44%, dragging the overall division down to a more modest profit increase from 61% to 48%. Excluding the Activision Blizzard acquisition, the gaming division would have been up 4%. The CFO estimates that the gaming division will continue to grow by 30 to 40 points in the coming quarters, while hardware revenue is expected to continue to decline. The same is true for the Devices division, which includes Surface, which saw its revenue decline 11 points. The division recently underwent layoffs and a turnaround. The impact of the new Surface, the Laptop 7th Edition, and the new Surface Pro can only be assessed later, as they were released in June.
The reality is that hardware is (modestly) weighing on the company’s bottom line right now, and that could have longer-term implications. Messaging around the gaming division remains tightly tied to metrics like accounts and users, with Satya Nadella boasting that they have “over 500 million monthly active users across platforms and devices,” a number that surely includes the hundreds of millions of gamers King is amassing in the mobile space. At the same time, the company continues to offer signs that the narrative of decoupling Xbox from the console itself is gaining momentum (a good example is the controversial “No Xbox? Have no fear with Amazon Fire TV” ad from a few weeks ago). We’ll have to keep an eye on results in the quarters of 2025 to see how this plays out.
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