10-QPeriod: Q1 FY2021

MICROSOFT CORP Quarterly Report for Q1 Ended Sep 30, 2020

Filed October 27, 2020For Securities:MSFT

Summary

Microsoft Corporation reported strong financial results for the first quarter of fiscal year 2021, with total revenue reaching $37.154 billion, a 12% increase year-over-year. This growth was driven by robust performance across all segments, particularly the Intelligent Cloud and Productivity and Business Processes segments. Net income surged by 30% to $13.893 billion, and diluted earnings per share rose to $1.82 from $1.38 in the prior year period. The company highlighted significant growth in its commercial cloud offerings, with revenue increasing by 31% to $15.2 billion. Key drivers included a 21% rise in Office 365 Commercial revenue and a substantial 48% growth in Azure. More Personal Computing also showed resilience, with Gaming and Surface revenue increasing, though partially offset by a decline in Search advertising. The company's strong operational execution and strategic focus on cloud services continue to fuel its financial success.

Financial Highlights

53 data points
Beta

Revenue

$37.15B

70.4% Gross Margin

Net Income

$13.89B

37.4% Net Margin

EPS (Diluted)

$1.82

Total Assets

$301.00B

Cash & Equivalents

$17.20B

Free Cash Flow

$14.43B

Financial Statements
Beta
Revenue$37.15B
Cost of Revenue$11.00B
Gross Profit$26.15B
R&D Expenses$4.93B
Operating Income$15.88B
Interest Expense$589.00M
Net Income$13.89B
EPS (Basic)$1.84
EPS (Diluted)$1.82
Shares Outstanding (Basic)7.57B
Shares Outstanding (Diluted)7.64B

Key Highlights

  • 1Total revenue increased by 12% to $37.154 billion compared to the prior year quarter.
  • 2Net income saw a significant jump of 30% to $13.893 billion, with diluted EPS rising to $1.82.
  • 3Commercial cloud revenue grew an impressive 31% to $15.2 billion, indicating strong adoption of Microsoft's cloud offerings.
  • 4Azure revenue demonstrated robust growth of 48%, underscoring its continued market leadership.
  • 5Productivity and Business Processes segment revenue grew 11%, driven by Office 365 Commercial (up 21%) and LinkedIn (up 16%).
  • 6More Personal Computing segment revenue increased by 6%, with strong contributions from Gaming (up 22%) and Surface (up 37%).
  • 7The company announced an agreement to acquire ZeniMax Media for $7.5 billion, signaling continued investment in gaming and content.

Frequently Asked Questions

The primary drivers of revenue growth were strong performance in the Intelligent Cloud segment, particularly Azure, and continued expansion in the Productivity and Business Processes segment, led by Office 365 Commercial and LinkedIn. The More Personal Computing segment also contributed, with notable growth in Gaming and Surface devices, despite a slight decline in Search advertising.

The acquisition of ZeniMax Media was announced during the quarter for $7.5 billion and is expected to close in the second half of fiscal year 2021. While the financial impact of the acquisition itself is not reflected in this quarter's results, it signifies Microsoft's strategic expansion into the gaming industry, which is a growing segment for the company.

The results indicate a very strong outlook for Microsoft's cloud business. Commercial cloud revenue increased 31% year-over-year to $15.2 billion, with Azure showing particularly strong growth of 48%. This sustained growth underscores the company's successful strategy and market position in cloud services.

Research and development expenses increased by 8% primarily due to investments in cloud engineering. Sales and marketing expenses saw a slight decrease of 2%, mainly due to advertising reductions. General and administrative expenses increased by 5%, largely driven by an increase in business taxes. A notable change impacting gross margin was an increase in the estimated useful lives of server and network equipment, which reduced depreciation expense and boosted operating income.