Microsoft Reaps Cloud Growth Benefits, But Surface, Xbox Struggle

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Cloud focus continues Microsoft’s momentum, amid warning signs over Xbox and Surface performance

Microsoft continues to please investors after a strong quarterly performance by its Azure and Office divisions.

But despite the growth in Microsoft’s cloud and Office revenues that helped deliver a strong set of quarterly financials, both Surface and overall gaming revenue has decreased.

Last week it emerged that CEO Satya Nadella had secured himself a mammoth payout thanks to the strong performance of the software giant’s share price, which pushed his pay up 65 percent from the year before to a staggering $42.9 million.

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Strong financials

Microsoft is still worth over a trillion dollars, with its share price, which has risen steadily under Nadella’s leadership, sitting at $137.24 as of Thursday morning.

And it is clear that the strong financial performance at the software giant is playing its part.

For the first quarter (2020) ending 30 September, Microsoft posted a net profit up 21 percent at $10.678bn, from $8.824bn in the same year-ago quarter.

Overall revenue meanwhile increased 14 percent to $33.1bn from $29.1bn a year earlier.

“The world’s leading companies are choosing our cloud to build their digital capability,” said Nadella. “We are accelerating our innovation across the entire tech stack to deliver new value for customers and investing in large and growing markets with expansive opportunity.”

Microsoft also announced that it is returning $7.9bn to shareholders in the form of dividends and share repurchases.

Divisional performance

There was some bad news for Redmond in the past quarter.

Revenue from its Surface devices fell 4 percent, with Microsoft blaming the “timing of product lifecycle transitions” for the decrease.

Microsoft has recently unveiled and launched updated Surface Pro 7 and Surface Laptop 3 models, complete with USB-C support. It is also releasing the Surface Pro X next month and its new Surface Earbuds later this year.

At the same time Microsoft previewed a folding phone device called the Surface Duo, and a dual-screen tablet called the Surface Neo (these will only be released for Christmas 2020, if at all).

This means that revenue from the Surface portfolio should be interesting to watch next quarter.

The other downer for Microsoft came from its gaming size, where revenue fell 7 percent.

But these declines were more than offset by strong performance elsewhere.
Microsoft’s commercial cloud generates $11.6 billion in revenue for the quarter, up 36 percent year over year.

Microsoft also reported that Office Commercial products and cloud services revenue increased 13 percent, driven by Office 365 Commercial revenue growth of 25 percent.

Office Consumer products and cloud services revenue increased 5 percent, with continued growth in Office 365 Consumer subscribers to 35.6 million

LinkedIn revenue increased 25 percent, and Dynamics products and cloud services revenue increased 14 percent, driven by Dynamics 365 revenue growth of 41 percent.

Revenue in Intelligent Cloud was $10.8 billion and increased 27 percent, while revenue in More Personal Computing was $11.1 billion and increased 4 percent.

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Author: Tom Jowitt
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