Microsoft reports Q1 revenue of $33.1B, up 14% YoY, as net income rises 21% YoY to $10.7B; Intelligent Cloud revenue rose 27% YoY to $10.8B, driven by Azure
REDMOND, Wash. — October 23, 2019 — Microsoft Corp. today announced the following results for the quarter ended September 30 …
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Context & Ripple Effects
Microsoft's October 2019 quarter extends a run the coverage has tracked for over two years: back in mid-2017, Intelligent Cloud grew just 11% to $7.4B against $23.3B in total revenue, while this quarter the segment hits $10.8B, up 27%, inside $33.1B overall.
The acceleration has been steady rather than spiky — the April 2019 quarter showed Intelligent Cloud up 22% — and net income again grew faster than revenue (21% vs. 14%), meaning the fastest-growing piece of the business is also the most profitable one.
First-order effects
Azure-driven Intelligent Cloud growth of 27% is doing most of the work behind Microsoft's 14% revenue increase, with the segment now contributing roughly a third of total revenue.
Net income of $10.7B, up 21%, confirms the cloud build-out is accretive, not dilutive — profit is compounding faster than the top line.
Second-order effects
As Azure scales off a larger base, holding 20%-plus Intelligent Cloud growth depends more on the rest of the segment (server products and enterprise services) carrying weight — the internal mix, not just Azure's headline rate, now sets the bar.
A business where the fastest-growing segment is also the most profitable gives Microsoft room to keep funding datacenter capacity without pressuring margins, widening the gap versus slower-growing legacy software peers.
Third-order effects
If the 2017-to-2019 pattern holds — Intelligent Cloud growth climbing from 11% to 27% while total revenue stays pinned near 13-14% — Microsoft completes its structural transition from a Windows-and-license company to one whose earnings are set by cloud infrastructure demand.
The trend: Across every quarter in this coverage since mid-2017, Microsoft's growth engine has migrated into Intelligent Cloud, making Azure's cadence the company's primary earnings driver.
Microsoft is expecting continued improvement in commercial cloud margins for the rest of the fiscal year, Amy Hood told me. Over time though, as Azure becomes a larger part of the mix, it will put pressure on that margin number, she said.
Specifically, Microsoft Surface revenue was $1.136B, though that was recorded right before the big Surface refresh (SP7, SL3, and so on) that just began kicking in this week.
Xbox Gaming Revenue was down 7% for the quarter ending September 30th 2019 compared to the same period last year. This was primarily driven by a decline in hardware revenue, partially offset by flat growth from Xbox content and services revenue. pic.twitter.com/NUcUIvGzd3
This is probably the shortest thread I've done on Microsoft earnings for the gaming division because MS decided to no longer report revenue, monthly active users or anything else like its competitors do.
Once again, Microsoft's three business units were nearly identical revenue wise, surprising. Productivity and Business Processes $11.1 billion Intelligent Cloud $10.8 More Personal Computing $11.1
Good to see this quote “Microsoft CFO Amy Hood also revealed that Gears 5 and Xbox Game Pass were driving revenues in Q2” Microsoft Q1 2020 earnings: cloud and Office boost as Surface and Xbox stall - The Verge https://www.theverge.com/...
Microsoft gave guidance last quarter on Surface sales stating it will “decline slightly” YoY driven by product lifecycle transitions. That's what happened as this quarter led up to pre-October refresh. Surface is still bringing in $1.1B in rev. https://www.windowscentral.com/ ...
Office and cloud are the real stars of the show in Microsoft's Q1, 2020 earnings. Microsoft now has 200 million subscribers for Office 365 commercial, that's up 30 percent year-over-year https://www.theverge.com/... pic.twitter.com/xP3ALPYHmC
Microsoft had directed investors to watch Xbox content and services as it removed visibility into total gaming revenue. and now Microsoft is saying revenue from this new category was ‘relatively unchanged.’ not the best look https://www.cnbc.com/...