01—Abstract
Summary
Summary of the 10-K filed July 29, 2021. Cited figures are marked; the original filing is the authoritative source.
Microsoft Corporation's (MSFT) fiscal year 2021 10-K filing reveals a strong performance driven by its cloud offerings and diversified product portfolio.
The company reported significant revenue growth across all segments, with Intelligent Cloud, Productivity and Business Processes, and More Personal Computing all contributing positively. This growth was fueled by strong demand for Azure services, Office 365 Commercial, and the gaming segment, bolstered by strategic acquisitions like ZeniMax Media. Financially, Microsoft demonstrated robust growth in revenue, gross margin, operating income, and net income.
The company's strategic shift towards cloud-based services continues to yield strong results, evidenced by the substantial increase in commercial cloud revenue. Microsoft also returned significant capital to shareholders through share repurchases and dividends, underscoring its financial health and commitment to shareholder value. The company remains focused on innovation, particularly in AI and cloud computing, while managing operational and cybersecurity risks.
02—Key points
Key Highlights
- Revenue increased by 18% to $168.1 billion, demonstrating broad-based growth across all operating segments.
- Commercial cloud revenue surged by 34% to $69.1 billion, highlighting the continued success and strategic importance of Microsoft's cloud services like Azure and Office 365 Commercial.
- Net income grew by a substantial 38% to $61.3 billion, and diluted earnings per share increased by 40% to $8.05, reflecting strong operational performance and profitability.
- The acquisition of ZeniMax Media for $8.1 billion in March 2021 significantly boosted the More Personal Computing segment, particularly within Gaming.
- Microsoft's commitment to shareholder returns is evident, with $10.4 billion returned in the fourth quarter of fiscal year 2021 through share repurchases and dividends.
- The company is actively investing in research and development, with R&D expenses increasing by 8% to $20.7 billion, primarily focused on cloud engineering and AI innovations.
- Microsoft updated its accounting estimate for server and network equipment useful lives, which positively impacted operating income by $2.7 billion and net income by $2.3 billion in fiscal year 2021.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2021, Microsoft Corp kept $0.36.
- Revenue$168.09B100.0%
- Cost of revenue−$52.23B31.1%
- Gross profit$115.86B68.9%
- Operating costs−$45.94B27.3%
- Operating income$69.92B41.6%
- Interest, other & tax−$8.64B5.1%
- Net income$61.27B36.5%
Where FY2021 revenue went
$168.09B- Net income: $61.27B, 36% of revenue
- Cost of revenue: $52.23B, 31% of revenue
- Other operating costs: $25.22B, 15% of revenue
- R&D: $20.72B, 12% of revenue
- Interest, other & tax: $8.64B, 5.1% of revenue
Kept 36% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2021filed July 29, 2021Financial Statements
FY2021 against FY2020
| Line item | FY2021FY2020 | Change |
|---|---|---|
| Revenue | $168.09B$143.01B | +17.5% |
| Cost of Revenue | $52.23B$46.08B | +13.4% |
| Gross Profit | $115.86B$96.94B | +19.5% |
| R&D Expenses | $20.72B$19.27B | +7.5% |
| Operating Income | $69.92B$52.96B | +32.0% |
| Interest Expense | $2.35B$2.59B | −9.5% |
| Net Income | $61.27B$44.28B | +38.4% |
| EPS (Basic) | $8.12$5.82 | +39.5% |
| EPS (Diluted) | $8.05$5.76 | +39.8% |
| Shares Outstanding (Basic) | 7.55B7.61B | −0.8% |
| Shares Outstanding (Diluted) | 7.61B7.68B | −1.0% |
05—Questions
Frequently Asked Questions
What were the main drivers of Microsoft's revenue growth in fiscal year 2021?
Microsoft's revenue growth in fiscal year 2021 was driven by strong performance across all its segments. Key contributors included the Intelligent Cloud segment, primarily fueled by Azure's 50% revenue growth, and the Productivity and Business Processes segment, boosted by Office 365 Commercial growth and LinkedIn's performance. The More Personal Computing segment also saw an increase, largely due to growth in Gaming, particularly Xbox content and services and hardware following new console launches.
How did Microsoft's cloud business perform, and what is its significance?
Microsoft's commercial cloud business demonstrated exceptional growth, with revenue increasing by 34% to $69.1 billion in fiscal year 2021. This segment, which includes Azure, Office 365 Commercial, Dynamics 365, and the commercial portion of LinkedIn, is a critical component of Microsoft's strategy and a major driver of overall company performance. The continued strong performance in cloud services underscores Microsoft's successful transition to a cloud-first, AI-driven future.
What is the company's approach to capital allocation and returning value to shareholders?
Microsoft returned a total of $10.4 billion to shareholders in the fourth quarter of fiscal year 2021 through a combination of share repurchases and dividends. For the full fiscal year 2021, the company repurchased shares totaling $23.0 billion and paid dividends totaling $16.9 billion. This demonstrates a consistent commitment to returning capital to shareholders, reflecting confidence in its financial stability and future prospects.
What are the key risks that Microsoft highlighted in its filing?
Microsoft identified several key risks, including intense competition across all its markets, the rapidly evolving technology landscape, cybersecurity threats, data privacy concerns, and the potential impact of economic downturns or geopolitical instability. Specific risks highlighted include challenges in maintaining platform competitiveness, securing its IT infrastructure and products against cyberattacks, and managing the integration of acquisitions like Nuance Communications. The company also noted potential impacts from ongoing legal and regulatory scrutiny, particularly concerning competition laws.
06—Continue