top of page

Mini Dragon Group (ages 6-7)

Public·5 members
Greyson Garcia
Greyson Garcia

Microsoft’s Cloud Business Helps Drive First Quarter Results



The non-GAAP financial measures provided should not be considered as a substitute for or superior to the measures of financial performance prepared in accordance with GAAP. They are included as additional clarifying items to aid investors in further understanding the company's first-quarter performance in addition to the impact these items and events have on the financial results. All growth comparisons we make on the call today relate to the corresponding period of last year unless otherwise noted. We will also provide growth rates in constant currency when available, as a framework for assessing how our underlying businesses performed, excluding the effect of foreign currency rate fluctuations.




Microsoft’s cloud business helps drive first quarter results


Download File: https://www.google.com/url?q=https%3A%2F%2Ftinourl.com%2F2u4cca&sa=D&sntz=1&usg=AOvVaw0_gTuPh9c23bE9W2KvfT2P



With that context, this quarter, the Microsoft Cloud again exceeded $25 billion in quarterly revenue, up 24% and 31% in constant currency. And based on current trends continuing, we expect our broader commercial business to grow at around 20% in constant currency this fiscal year, as we manage through the cyclical trends affecting our consumer business. With that, let me highlight our progress starting with Azure. Moving to the cloud is the best way for organizations to do more with less today.


And GitHub's developer-first ethos has never been stronger. More than 90 million people now use the service to build software for any cloud on any platform up three times. GitHub advanced security is helping organizations improve their security posture by bringing features directly into the developer's workflow. Toyota North America chose the offering this quarter to help its developers build and secure many of its most critical applications.


Microsoft 365 is the cloud-first platform that supports all the ways people work and every type of worker reducing cost and complexity for IT. The new Microsoft 365 app brings together our productivity apps with third-party content, as well as personalized recommendations. Microsoft Teams is the de facto standard for collaboration and has become essential to how hundreds of millions of people meet, call, chat, collaborate and do business. As we emerge from the pandemic, we are retaining users we have gained and are seeing increased engagement, too.


In our consumer business, PC market demand further deteriorated in September, which impacted our Windows OEM and Surface businesses. And reductions in customer advertising spend, which also weakened later in the quarter, impacted search and news advertising and LinkedIn Marketing Solutions. As you heard from Satya, in our commercial business, we saw strong overall demand for our Microsoft cloud offerings with a growth of 31% in constant currency as well as share gains across many businesses. Commercial bookings declined 3% and increased 16% in constant currency on a flat expiry base.


The remaining portion, which we recognized beyond the next 12 months, increased 38% year over year, and our annuity mix increased one point year over year to 96%. FX impacted company results in line with expectations. With the stronger US dollar, FX decreased total company revenue by five points, and at the segment level, FX decreased productivity and business processes and intelligent cloud revenue growth by six points and more personal computing revenue growth by three points. Additionally, FX decreased COGS and operating expense growth by three points.


Growth was driven by installed base expansion across all workloads and customer segments, as well as higher ARPU from E5. Demand for security, compliance, and voice value in Microsoft 365 drove strong E5 momentum again this quarter. Paid Office 365 commercial seats grew 14% year over year, driven by our small and medium business and frontline worker offerings, although we saw a continued impact of new deal moderation outside of E5. Office consumer revenue grew 7% and 11% in constant currency, driven by continued momentum in Microsoft 365 subscriptions, which grew 13% to $61.3 million.


Azure and other cloud services revenue grew 35% and 42% in constant currency, about one point lower than expected, driven by the continued moderation in Azure consumption growth, as we help customers optimize current workloads while they prioritize new workloads. In our per-user business, the enterprise mobility and security installed base grew 18% to over 232 million seats, with continued impact from the new deal moderation noted earlier. In our on-premises server business, revenue was flat, and increased 4% in constant currency, slightly ahead of expectations, driven by hybrid demand, including better-than-expected annuity purchasing ahead of the SQL Server 2022 launch. Enterprise services revenue grew 5% and 10% in constant currency, driven by enterprise support services.


Devices revenue grew 2% and 8% in constant currency, in line with expectations, driven by the impact of a large Hollands deal, partially offset by low double-digit declines in consumer Surface sales. Windows commercial products and cloud services revenue grew 8% and 15% in constant currency, in line with expectations, driven by demand for Microsoft 365 E5 noted earlier. Search and news advertising revenue, ex TAC, increased 16% and 21% in constant currency, in line with expectations, benefiting from an increase in search volumes and roughly five points of impact from Xandr even as we saw increased ad market headwinds during September. Edge browser gained share again this quarter.


And in gaming, revenue grew slightly and was up 4% in constant currency, ahead of expectations, driven by better-than-expected console sales. Xbox hardware revenue grew 13% and 19% in constant currency. Xbox content and services revenue declined 3% and increased 1% in constant currency, driven by declines in first-party content as well as in third-party content where we had lower engagement hours and higher monetization, partially offset by growth in Xbox Game Pass subscriptions. Segment gross margin dollars declined 9% and 4% in constant currency, and gross margin percentage decreased roughly five points year over year driven by sales mix shift to lower margin businesses.


My commentary, for both the full year and next quarter, does not include any impact from AC division, which we still expect to close by the end of the fiscal year. First, FX. With the stronger US dollar and based on current rates, we now expect FX to decrease total revenue growth by approximately five points and to decrease total COGS and operating expense growth by approximately three points. Within the segments, we anticipate roughly seven points of negative FX impact on revenue growth in productivity and business processes, six points in Intelligent cloud and three points in more personal computing.


Our outlook has many of the trends we saw at the end of Q1, continue into Q2. In our consumer business, materially weaker PC demand from September will continue, and impact both Windows OEM and Surface device results even as the Windows installed base and usage grows, as you heard from Satya. Additionally, customers focusing our advertising spend will impact LinkedIn and Search and News advertising revenue. In our commercial business, demand for our differentiated hybrid and cloud offerings, together with consistent execution, should drive healthy growth across the Microsoft Cloud.


In capital expenditures, we expect a sequential increase on a dollar basis with normal quarterly spend variability in the timing of our cloud infrastructure build-out. Next, to segment guidance. In productivity and business processes, we expect revenue to grow between 11% and 13% in constant currency or USD16.6 billion to USD 16.9 billion. In Office Commercial, revenue growth will again be driven by Office 365, with seat growth across customer segments and ARPU growth from E5.


We expect Office 365 revenue growth to be similar to last quarter on a constant currency basis. In our on-premises business, we expect revenue to decline in the low to mid-30s. In Office Consumer, we expect revenue to decline low to mid-single digits as Microsoft 365 subscription growth will be more than offset by unfavorable FX impact. For LinkedIn, we expect continued strong engagement on the platform, although results will be impacted by a slowdown in advertising spend and hiring, resulting in mid to high single-digit revenue growth or low to mid-teens growth in constant currency.


And in Dynamics, we expect revenue growth in the low double digits or the low 20s in constant currency, driven by continued share gains in Dynamics 365. For intelligent cloud, we expect revenue to grow between 22% and 24% in constant currency or US$21.25 billion to US$21.55 billion. Revenue will continue to be driven by Azure, which, as a reminder, can have quarterly variability primarily from our per-user business and from in-period recognition depending on the mix of contracts. We expect Azure revenue growth to be sequentially lower by roughly 5 points on a constant currency basis.


In Windows commercial products and cloud services, customer demand for Microsoft 365 and our advanced security solutions should drive growth in the mid-single digits or low double digits in constant currency. Search and news advertising, ex TAC, should grow in the low to mid-teens, roughly six points faster than overall search and news advertising revenue, driven by growing first-party revenue and the inclusion of Xandr. And in gaming, we expect revenue to decline in the low to mid-teens against a strong prior year comparable. That included several first-party title launches, partially offset by growth in Xbox Game Pass subscribers.


And FX should decrease COGS and operating expense growth by approximately three points. At the total company level, we continue to expect double-digit revenue and operating income growth on a constant currency basis. Revenue will be driven by around 20% constant currency growth in our commercial business, driven by strong demand for our Microsoft cloud offerings. That growth will be partially offset by the increased declines we now see in the PC market.


About

Welcome to the group! You can connect with other members, ge...

Members

  • Jayson Loayon
    Jayson Loayon
  • Luke Lee
    Luke Lee
  • Hunter Gomez
    Hunter Gomez
  • Greyson Garcia
    Greyson Garcia
  • Twitter
  • White Facebook Icon
  • White Instagram Icon
bottom of page