10-QPeriod: Q1 FY2016

MICROSOFT CORP Quarterly Report for Q1 Ended Sep 30, 2015

Filed October 22, 2015For Securities:MSFT

Summary

Microsoft Corporation (MSFT) reported its financial results for the fiscal quarter ending September 29, 2015. Total revenue for the quarter was $20.38 billion, a decrease of 12% compared to the same period last year, largely impacted by a significant revenue deferral related to the Windows 10 launch and lower revenue from the More Personal Computing segment, particularly phones. However, the Intelligent Cloud segment showed growth, with revenue increasing by 8% driven by server products and services, including Microsoft Azure. Net income for the quarter was $4.62 billion, a slight increase from $4.54 billion in the prior year, resulting in diluted earnings per share of $0.57, up from $0.54. The company continued its robust share repurchase program, demonstrating a commitment to returning capital to shareholders, and maintained a strong liquidity position with over $99 billion in cash, cash equivalents, and short-term investments. Despite the revenue dip, the company highlighted growth in its commercial cloud annualized run rate and a significant increase in Office 365 Consumer subscribers, signaling a strategic shift towards its cloud services.

Financial Highlights

53 data points
Beta

Revenue

$20.38B

64.6% Gross Margin

Net Income

$4.90B

24.1% Net Margin

EPS (Diluted)

$0.61

Total Assets

$172.90B

Cash & Equivalents

$5.43B

Free Cash Flow

$7.52B

Financial Statements
Beta
Revenue$20.38B
Cost of Revenue$7.21B
Gross Profit$13.17B
R&D Expenses$2.96B
Operating Income$5.79B
Interest Expense$249.00M
Net Income$4.90B
EPS (Basic)$0.61
EPS (Diluted)$0.61
Shares Outstanding (Basic)8.00B
Shares Outstanding (Diluted)8.08B

Key Highlights

  • 1Revenue for the quarter declined 12% year-over-year to $20.38 billion, primarily due to lower sales in the More Personal Computing segment and Windows 10 revenue deferrals.
  • 2Net income saw a slight increase to $4.62 billion, with diluted earnings per share rising to $0.57 from $0.54 in the prior year.
  • 3The Intelligent Cloud segment demonstrated strong performance with an 8% revenue increase, driven by server products and services, including Microsoft Azure.
  • 4Office 365 Consumer subscribers grew to 18.2 million, an increase of 3 million in the quarter.
  • 5Microsoft Azure revenue and compute usage more than doubled year-over-year.
  • 6The company repurchased $4.0 billion of its common stock during the quarter, underscoring its capital return program.
  • 7Cash, cash equivalents, and short-term investments remained robust at $99.4 billion, providing significant financial flexibility.

Frequently Asked Questions

The primary reasons for the 12% decrease in revenue were the substantial revenue deferral related to Windows 10 licenses, which are now recognized ratably over the estimated life of the device, and a decline in revenue from the More Personal Computing segment, particularly the phone business, which is undergoing a strategic shift.

Microsoft is showing strong momentum in its cloud services. The Intelligent Cloud segment revenue grew 8%, driven by server products and services, with Microsoft Azure revenue and compute usage doubling year-over-year. Additionally, Office 365 Consumer subscribers increased to 18.2 million.

Microsoft is actively returning capital to shareholders through its share repurchase program. During this quarter, the company repurchased $4.0 billion of its common stock. It also continues to pay quarterly dividends.

The launch of Windows 10 led to a significant revenue deferral. Revenue from Windows 10 licenses is now recognized ratably over the estimated life of the related device (2-4 years), rather than upfront upon sale. This deferral negatively impacted current quarter revenue by $1.3 billion and reduced diluted EPS by approximately $0.10.