10-QPeriod: Q1 FY2017

MICROSOFT CORP Quarterly Report for Q1 Ended Sep 30, 2016

Filed October 20, 2016For Securities:MSFT

Summary

Microsoft Corporation's (MSFT) 10-Q filing for the period ending September 29, 2016, reveals a slight increase in total revenue to $20.45 billion, largely driven by growth in the Intelligent Cloud and Productivity and Business Processes segments, which offset a decline in More Personal Computing. While overall revenue remained flat year-over-year, operating income saw a 10% decrease to $5.22 billion, attributed to higher cost of revenue and increased R&D expenses, partially offset by lower sales and marketing costs. Diluted EPS slightly decreased to $0.60. The company highlighted strong performance in its cloud offerings, with Office 365 commercial revenue growing 51% and Microsoft Azure revenue surging 116%. However, the significant net revenue deferral from Windows 10 sales negatively impacted EPS. Microsoft also announced its definitive agreement to acquire LinkedIn for $26.2 billion, a strategic move expected to accelerate growth in its cloud businesses.

Financial Highlights

53 data points
Beta

Revenue

$21.93B

64.2% Gross Margin

Net Income

$5.67B

25.8% Net Margin

EPS (Diluted)

$0.72

Total Assets

$212.52B

Cash & Equivalents

$13.93B

Free Cash Flow

$9.39B

Financial Statements
Beta
Revenue$21.93B
Cost of Revenue$7.84B
Gross Profit$14.08B
R&D Expenses$3.11B
Operating Income$6.71B
Interest Expense$437.00M
Net Income$5.67B
EPS (Basic)$0.73
EPS (Diluted)$0.72
Shares Outstanding (Basic)7.79B
Shares Outstanding (Diluted)7.88B

Key Highlights

  • 1Total revenue for the quarter was $20.45 billion, a slight increase from the prior year's $20.38 billion.
  • 2Operating income decreased by 10% to $5.22 billion compared to $5.79 billion in the same period last year.
  • 3Diluted Earnings Per Share (EPS) was $0.60, down from $0.61 in the prior year.
  • 4Intelligent Cloud segment revenue increased by 8%, driven by a 116% surge in Microsoft Azure revenue.
  • 5Productivity and Business Processes segment revenue grew by 6%, primarily fueled by Office 365 commercial growth.
  • 6The company announced a definitive agreement to acquire LinkedIn for $26.2 billion, expected to close in calendar year 2016.
  • 7Cash, cash equivalents, and short-term investments significantly increased to $136.9 billion from $113.2 billion, reflecting strong cash generation and debt issuance.

Frequently Asked Questions

Total revenue was $20.45 billion, a slight increase of 0.4% ($74 million) compared to $20.38 billion in the same period last year. This growth was primarily driven by increases in the Intelligent Cloud and Productivity and Business Processes segments, which helped offset a decline in the More Personal Computing segment and a larger net revenue deferral from Windows 10.

The acquisition of LinkedIn, valued at $26.2 billion, was announced in June 2016 and is expected to close in calendar year 2016. While the financial impact of the acquisition is not yet reflected in this period's results, management expects it to accelerate the growth of LinkedIn itself, as well as Microsoft's Office 365 and Dynamics businesses. The transaction is being financed primarily through the issuance of new debt.

The cloud business shows strong momentum. Intelligent Cloud revenue grew 8%, with Microsoft Azure revenue up 116%. The Productivity and Business Processes segment, which includes Office 365, saw a 6% revenue increase, driven by a 51% growth in Office 365 commercial revenue. Office 365 consumer subscribers also increased to 24 million.

Operating income decreased by 10% to $5.22 billion from $5.79 billion. This was mainly due to a higher cost of revenue (up 9%) and an increase in research and development expenses (up 5%), which were partially offset by lower sales and marketing expenses (down 3%). The unfavorable foreign currency impact also contributed to the decrease.