It’s that time of year again, where Microsoft shares its latest earnings for the benefit of investors and the public. While it has experienced a relatively strong quarter primarily due to strong growth in the cloud and enterprise sectors (Office, LinkedIn, Dynamics, Server), there are some concerns in the latest results.
Instead of making you go through a long form review Microsoft’s financial data For the second quarter of FY23 ending December 31, 2022, we have decided to include the highlights in bullets this time for better readability. You can see them below:
Income: $52.7 billion (+2% over the same quarter last year)
- Productivity and Business Process: $17.0bn (+7%)
- Intelligent cloud: $21.5bn (+18%)
- More personal computing: $14.2bn (-19%)
- Gross Margin: $35.3bn (+1%)
- Operating Income: $20.4 billion (-8%)
- The actual arrival: $16.4 billion (-12%)
- Earnings per share: $2.20 (-11%)
As can be seen, despite showing strong growth in the cloud and business, its revenues were mostly offset by a comparative decline in the personal computing category, which also resulted in lower net income. And earnings per share. It’s important to understand that Microsoft isn’t losing money, its growth is slower than the same period last fiscal year.
Perhaps most interesting is the lack of further development in the field of personal computing, which consists primarily of consumer devices and services:
- Windows OEM and commercial revenue declined 39% and 3%, respectively, due to weaker PC demand and lower sales of standalone products.
- Despite growth in Xbox Game Pass, Xbox content and services fell 12 percent due to a lack of first-party content.
- Devices revenue fell 39 percent due to weak demand for PCs and “operational challenges” in launching new products.
- Traffic acquisition spend increased 10% in search and news advertising revenue due to the Xandr acquisition and higher search volume.
CEO Satya Nadella highlighted the growing focus in AI going forward, also driven by Microsoft’s OpenAI investment:
The next big wave of computing is coming, as the Microsoft Cloud transforms the world’s most advanced AI models into a new computing platform. We are committed to helping our customers do more today using our platforms and tools and innovate for the future in the new era of AI.
In the next quarter, Microsoft expects. Revenues would be around $50.5 billion to $51.5 billion, with operating margins down 2 percent year-over-year, which means investors can expect similar results after three months. In particular, Microsoft expects its personal computing revenue to decline further to $11.9-12.3 billion. Although the situation is not really dire, it is clear that with the recent layoffs, Microsoft has its work cut out for it.