10-QPeriod: Q2 FY2021

MICROSOFT CORP Quarterly Report for Q2 Ended Dec 31, 2020

Filed January 26, 2021For Securities:MSFT

Summary

Microsoft Corporation (MSFT) reported strong financial results for the quarter and six months ended December 31, 2020. Total revenue increased significantly year-over-year, driven by robust performance across all reporting segments: Productivity and Business Processes, Intelligent Cloud, and More Personal Computing. The Intelligent Cloud segment, in particular, showed substantial growth, primarily fueled by Azure's impressive expansion. The Productivity and Business Processes segment also saw solid gains, benefiting from Office 365 Commercial and LinkedIn's performance. More Personal Computing delivered increased revenue, with Gaming being a key growth driver, boosted by new console launches. The company's commercial cloud revenue experienced a significant surge, underscoring its strategic focus on cloud services. Profitability also saw a notable improvement, with operating income and diluted earnings per share showing strong year-over-year increases. This was supported by higher gross margins, partly due to a change in accounting estimate for server and network equipment's useful life, which positively impacted operating and net income. Microsoft continues to return capital to shareholders through share repurchases and dividends, demonstrating its commitment to shareholder value.

Financial Highlights

53 data points
Beta

Revenue

$43.08B

67.0% Gross Margin

Net Income

$15.46B

35.9% Net Margin

EPS (Diluted)

$2.03

Total Assets

$304.14B

Cash & Equivalents

$14.43B

Free Cash Flow

$8.34B

Financial Statements
Beta
Revenue$43.08B
Cost of Revenue$14.19B
Gross Profit$28.88B
R&D Expenses$4.90B
Operating Income$17.90B
Interest Expense$571.00M
Net Income$15.46B
EPS (Basic)$2.05
EPS (Diluted)$2.03
Shares Outstanding (Basic)7.55B
Shares Outstanding (Diluted)7.62B

Key Highlights

  • 1Total revenue for the six months ended December 31, 2020, increased by 15% to $80.23 billion compared to the prior year.
  • 2Intelligent Cloud segment revenue grew 21% year-over-year to $27.59 billion for the six months ended December 31, 2020, with Azure revenue increasing by 49%.
  • 3Productivity and Business Processes segment revenue increased by 12% to $25.67 billion for the six months ended December 31, 2020, driven by Office Commercial and LinkedIn.
  • 4More Personal Computing segment revenue rose 11% year-over-year to $26.97 billion for the six months ended December 31, 2020, with Gaming revenue up 38%.
  • 5Diluted earnings per share increased by 33% to $3.85 for the six months ended December 31, 2020, compared to the prior year.
  • 6Commercial cloud revenue reached $31.9 billion for the six months ended December 31, 2020, a significant increase from $24.1 billion in the prior year.
  • 7The company repurchased $11.0 billion in shares and paid $8.5 billion in dividends during the six months ended December 31, 2020.

Frequently Asked Questions

Revenue growth was driven by strong performance across all segments. The Intelligent Cloud segment, particularly Azure, showed significant growth. Productivity and Business Processes benefited from Office 365 Commercial and LinkedIn, while More Personal Computing saw increased revenue from Gaming due to new console launches and ongoing demand for PCs.

In July 2020, Microsoft increased the estimated useful lives of server equipment from three to four years and network equipment from two to four years, effective fiscal year 2021. This change positively impacted operating income by $1.7 billion and net income by $1.4 billion for the six months ended December 31, 2020, and also improved gross margins and commercial cloud gross margin percentages.

Microsoft continues to return capital to shareholders through share repurchases and dividends. For the six months ended December 31, 2020, the company repurchased $11.0 billion in shares and paid $8.5 billion in dividends, demonstrating a commitment to shareholder value.

Yes, Microsoft entered into a definitive agreement to acquire ZeniMax Media Inc. for $7.5 billion in cash. This acquisition, which is subject to customary closing conditions and regulatory review, is expected to close in the second half of fiscal year 2021.