Microsoft today reported earnings for its first fiscal quarter of 2020, including revenue of $33.1 billion, net income of $10.7 billion, and earnings per share of $1.38 (compared to revenue of $29.1 billion, net income of $8.8 billion, and earnings per share of $1.14 in Q1 2019). All three of the company’s operating groups saw year-over-year growth.
Analysts had expected Microsoft to earn $32.2 billion in revenue and report earnings per share of $1.24. The company thus handily beat expectations. The company’s stock was flat in regular trading, and also flat in after-hours trading. Microsoft said it returned $7.9 billion to shareholders in the form of share repurchases and dividends during the quarter.
“The world’s leading companies are choosing our cloud to build their digital capability,” Microsoft CEO Satya Nadella said in a statement. “We are accelerating our innovation across the entire tech stack to deliver new value for customers and investing in large and growing markets with expansive opportunity.”
We largely attribute the consistent quarterly to Nadella’s plan to turn Microsoft into a cloud company. In 2017, Microsoft’s cloud annualized run rate passed $20 billion, ahead of schedule. That number has now effectively doubled.
Operating group highlights
Here are the highlights across Microsoft’s three operating groups:
- Productivity and Business Processes: Up 13% to $11.1 billion. Office commercial revenue grew 13%, Office consumer and cloud revenue was up 5%, and Dynamics revenue increased 14%. LinkedIn revenue jumped a solid 25%. Office 365 consumer subscribers hit 35.6 million.
- Intelligent Cloud: Up 27% to $10.8 billion. Server products and cloud services revenue grew 30%, while Enterprise Services revenue increased 7%. The big number as always was Azure revenue, which jumped by 59% (noticeably lower than past quarters).
- More Personal Computing: Up 4% to $11.1 billion. Windows OEM revenue was up 9%, while Windows commercial revenue increased 26%. Search advertising revenue minus traffic acquisition costs jumped 11%. Surface revenue decreased by 4%, and Xbox content and services revenue was flat.
35 million consumer subscribers of Office 365 is significant, but it naturally pales in comparison to the enterprise side. In fact, this past quarter, Microsoft passed 200 million monthly active Office 365 business users.
Office, LinkedIn, Surface, Cloud, and Gaming
That growth contributed to overall revenue gains. Microsoft Office continues to be a cash cow for the company with the pivot to an Office 365 subscription business largely deemed a success. Microsoft has also successfully monetized its LinkedIn acquisition, which closed in December 2016. Double-digit growth for LinkedIn has been consistent for multiple quarters now.
Surface continues to bring in $1 billion quarters. That said, Q1 is typically the company’s worst corner for Surface, and Q1 2020 was no different with just $1.14 billion in revenue (compared to $1.18 billion in Q1 2019). That is likely because many were waiting for the company’s annual hardware event, which took place earlier this month. The company refreshed its lineup with the Surface Laptop 3, Surface Pro 7, Surface Pro X, and Surface Earbuds in time for the holiday season. We won’t know the results until next quarter, of course. This was easily the company’s biggest Surface event in years — Microsoft also unveiled dual-screen devices coming in 2020: Surface Neo and Surface Duo.