10-QPeriod: Q1 FY2023

MICROSOFT CORP Quarterly Report for Q1 Ended Sep 30, 2022

Filed October 25, 2022For Securities:MSFT

Summary

Microsoft Corporation (MSFT) reported its first quarter fiscal year 2023 results, showing a notable increase in total revenue, up 11% year-over-year to $50.122 billion. This growth was primarily driven by the Intelligent Cloud segment, which saw a 20% revenue increase to $20.325 billion, largely fueled by a 35% surge in Azure and other cloud services. The Productivity and Business Processes segment also contributed positively with a 9% revenue increase to $16.465 billion, bolstered by growth in Office 365 Commercial and LinkedIn. Despite the revenue growth, net income saw a decline of 14% to $17.556 billion, resulting in diluted earnings per share of $2.35, down from $2.71 in the prior year. This decrease in profitability was influenced by a substantial tax benefit recorded in the prior year's comparable quarter related to intangible property transfers, which is absent in the current period. Operating expenses also increased by 15% due to strategic investments in cloud engineering, Nuance acquisition integration, and commercial sales efforts. The company continues to execute its capital return strategy, with significant share repurchases and dividend payments.

Financial Highlights

53 data points
Beta

Revenue

$50.12B

69.2% Gross Margin

Net Income

$17.56B

35.0% Net Margin

EPS (Diluted)

$2.35

Total Assets

$359.78B

Cash & Equivalents

$22.88B

Free Cash Flow

$16.91B

Financial Statements
Beta
Revenue$50.12B
Cost of Revenue$15.45B
Gross Profit$34.67B
R&D Expenses$6.63B
Operating Income$21.52B
Interest Expense$500.00M
Net Income$17.56B
EPS (Basic)$2.35
EPS (Diluted)$2.35
Shares Outstanding (Basic)7.46B
Shares Outstanding (Diluted)7.49B

Key Highlights

  • 1Total revenue grew by 11% year-over-year to $50.122 billion.
  • 2Intelligent Cloud segment revenue increased by 20% to $20.325 billion, with Azure and other cloud services up 35%.
  • 3Productivity and Business Processes segment revenue grew 9% to $16.465 billion, driven by Office 365 Commercial and LinkedIn.
  • 4More Personal Computing segment revenue remained relatively flat, impacted by a decline in Windows OEM but offset by growth in Search and news advertising.
  • 5Net income decreased by 14% to $17.556 billion, and diluted EPS fell to $2.35 from $2.71.
  • 6Operating expenses increased by 15% due to investments in cloud engineering, Nuance, and commercial sales.
  • 7The company continued its capital return program, repurchasing shares and paying dividends.

Frequently Asked Questions

Revenue growth was primarily driven by the Intelligent Cloud segment, with a significant contribution from Azure and other cloud services, and the Productivity and Business Processes segment, benefiting from Office 365 Commercial and LinkedIn.

The decrease in net income and EPS was mainly due to a large net income tax benefit recorded in the prior year's comparable quarter related to the transfer of intangible properties, which was not present in the current quarter. Additionally, increased operating expenses for strategic investments also impacted profitability.

The Nuance acquisition's financial results are included in the Intelligent Cloud segment, contributing to its revenue growth. Operating expenses increased due to integration efforts. The Activision Blizzard acquisition is still pending regulatory approvals and is not yet reflected in the financial results.

Microsoft's cloud business, particularly Azure and other cloud services, continues to show strong growth (35% year-over-year). The company is making significant investments in this area, indicating a strategic focus and positive outlook for its cloud offerings, despite some pressure on margins due to energy costs and sales mix.