Microsoft reports higher-than-estimate Q2 earnings; revenue at $24.1b

Microsoft today published its earnings report for the 2nd quarter of fiscal 2017 – that’s the 4th quarter of calendar 2016.

The company has managed to beat analyst expectations; the revenue sits at $24.1 billion GAAP ($26.1b non-GAAP) with the net income at a comfortable $5.2 billion GAAP ($6.5b non-GAAP). The diluted earnings per share were at $0.66 GAAP ($0.83 non-GAAP).

Wall Street analysts were anticipating for about $25.3 billion in revenue with $0.79 of earnings per share.

The Highlights

As always, the quarterly reports involve a lot of numbers; we are going to simply list the highlights. If you wish to look at the numbers, here’s the link to the full report, complete with spreadsheets and a PowerPoint presentation. There are a few charts as well.

P.S: All growth numbers are in constant currency.

  • Microsoft’s Azure services revenue increased by 95%; Azure compute usage more than double year-on-year.
  • Enterprise Services revenue fell by 2% with “declines in custom support agreements” which was offset by “growth in Premier Support Services and consulting.”
  • Office 365 Commercial revenue grew by 49%, contributing to a 7% growth in revenue for the Productivity and Business Processes Division.
  • Office products and cloud services revenue grew by 21%; Office 365 Consumer subscribers rose to a staggering 24.9 million, about 900 million more than Q1 2017.
  • LinkedIn contributed to Microsoft’s earnings with $228 million, though the acquisition cost of $26.2 billion is quite mighty.
  • Surface revenue went down by 2% – despite the Surface Studio and Surface Book.
  • Gaming revenue fell for the second consecutive quarter; a 1% drop was “driven by lower Xbox console pricing and lower console volume.”
  • Xbox software and services revenue went up by 21%, with “digital transactions reaching $1 billion this quarter.”
  • Xbox Live monthly active users grew by 15% to a record 55 million with “growth across Xbox One, Windows 10, and mobile platforms.”
  • Microsoft’s phone hardware business – unsurprisingly – saw an 81% drop in revenue.
  • Search revenue – excluding traffic acquisition costs – increased by 11%, thanks to higher revenue per search and a rising search volume.

The complete report is available here, along with the webcast of the earnings call; you can also find the financial statements, earnings call slides, and press release at the link.

Q2 2017 was certainly an interesting quarter; the steep discounts for Xbox One have clearly made a dent in its revenues, but Xbox Live’s growth is impressive, to say the least.

The drop in Surface revenue looks worrying – but it might just be because the Surface Pro 4 and Surface Book are about 15 months old now, causing a slowdown in their demand.

Microsoft is in a good shape, overall; beating analyst expectations should be enough proof of that.

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