Cloud services drive Microsoft’s strong growth
Cloud services continue to be a strong driver of revenue growth for Microsoft Corp. In the third-quarter fiscal 2022 financial statements, the company reported total revenue of $49.4 billion, an 18% year-over-year increase. Microsoft Cloud revenue was $23.4 billion for the quarter with a gross margin of 70%, down slightly year-over-year.
“It was a record third quarter, driven by the continued strength of Microsoft Cloud, which exceeded $23 billion in revenue, up 32% year-over-year,” said Microsoft CEO, Satya Nadella, on the April 26, 2022 earnings call. “Going forward, digital technology will be the key element that powers global economic output. Across the technology stack, we expand our opportunities and take part as we help customers differentiate themselves, build resilience, and do more with less.
LinkedIn revenue was also strong in the quarter, growing 34% year-over-year, with record engagement of 830 million professionals using the platform.
“In the midst of the Great Redesign, we are seeing the emergence of a skills-based labor market. The number of companies using skills filters on LinkedIn to fill open positions has doubled year over year,” Nadella said. “In this dynamic job market, hiring on LinkedIn has increased by 88%. Talent Solutions revenue increased 43%, marking the sixth consecutive quarter of accelerating growth. »
Other Quarterly Highlights
Microsoft reported the following highlights for the third quarter of fiscal 2022:
- Operating profit was $20.4 billion, a 19% year-over-year increase.
- Net income was $16.7 billion, an 8% increase year over year (GAAP), or diluted earnings per share of $2.22, an increase of 9% year over year on the other (GAAP).
- Productivity and Business Processes revenue was $15.8 billion, an increase of 17% year-over-year.
- Office Commercial products and cloud services revenue increased 12%, driven by Office 365 Commercial revenue growth of 17% year-over-year.
- Office Consumer products and cloud services revenue increased 11% year over year.
- The company now has 58.4 million Microsoft 365 Consumer subscribers, up from 56.4 million at the end of the second quarter of fiscal 2022.
- Dynamics products and cloud services revenue grew 22%, driven by Dynamics 365 revenue growth of 35% year-over-year.
- Intelligent Cloud revenue was $19.1 billion, representing a 26% year-over-year increase.
- Server products and cloud services revenue grew 29%, driven by Azure and other cloud services revenue growth of 46% year-over-year.
- More Personal Computing revenue was $14.5 billion, up 11% year-over-year.
- Windows OEM revenue increased 11% year over year.
- Windows commercial products and cloud services revenue grew 14% year-over-year.
- Revenue from Xbox content and services increased 4% year-over-year.
- Search and news ad revenue, excluding traffic acquisition costs, was up 23% year-over-year.
- Surface revenue increased by 13%.
- During the quarter, Microsoft returned $12.4 billion to shareholders through stock buybacks and dividend payments, a 25% increase over the prior year period.
Fourth Quarter Outlook
Chief Financial Officer Amy Hood provided guidance for the fourth quarter of fiscal 2022, after sharing cautionary notes on the company’s outlook. The company expects negative currency impacts, a full quarter of impact from the acquisition of Nuance, a revenue impact of approximately $110 million due to the war in Ukraine and shutdowns in China, including extended shutdowns affecting Windows OEM, Surface, and Xbox hardware sales.
“With this backdrop in place, let’s move on to our outlook for the fourth quarter. In our largest quarter of the year, we expect our differentiated market position, customer demand across our portfolio of solutions and our consistent execution will deliver another solid quarter of revenue growth,” said Hood.
- Microsoft Cloud gross margin percentage is estimated to be down one point year-over-year.
- Capital expenditures will increase as the company makes strategic investments to meet growing demand for its cloud services.
- Productivity and business process revenue will be between $16.65 billion and $16.9 billion.
- Intelligent Cloud revenue will be between $21.1 billion and $21.35 billion, driven by Azure.
- More Personal Computing’s revenue will be between $14.65 billion and $14.95 billion.
- Interestingly, the company expects gaming revenue to decline in the mid to high digits due to lower hours commitment and tight console supply. Revenue from Xbox content and services is also expected to drop to an average number, but still higher than pre-pandemic levels.
“We expect to close FY22, even in a more complex macroeconomic environment, with the same consistency we have delivered throughout the year with strong revenue growth, market share gains and margins. improved operations as we invest in the areas that are critical to sustaining this growth,” said Hood.
“As we look to FY23, our track record of creating high value for our clients in many diverse and sustainable growth markets gives us confidence that we will continue to deliver healthy two-way growth. revenue and operating income figures,” added Hood.
Microsoft Stock Value
Microsoft investors did not react strongly to the company’s news. On April 26, Microsoft stock was valued at $270.22 per share, down $10.50 per share from the previous day. As of 7:59 p.m. EDT yesterday, the stock had rebounded to $283.22 per share, slightly higher.
Despite the global effects of the pandemic, Russia’s invasion of Ukraine, supply chain disruptions and exchange rates, Microsoft continues to outperform the prior year period. Driven by cloud services and increasing segment revenues, the company remains on solid footing financially and with a view to growth. Interestingly, gaming revenue is declining, especially with Microsoft’s recent investment in gaming. We’re curious to see when that should bounce back, as the company’s acquisition of Activision Blizzard will make Microsoft the world’s third-largest games company once the deal closes.