Earnings report sharing/Microsoft's revenue and EPS both beat expectations!! The stock price rose more than 3% after hours!

$Microsoft(MSFT.US) announced its Q3 2024 earnings after the market closed on April 25th. The results showed both revenue and EPS exceeded expectations, with all three major business segments outperforming forecasts. The stock price rose over 3% in after-hours trading! What other data is worth noting? Let’s take a look together!

Q3 2024

Revenue increased 17% year-over-year to $61.86 billion, compared to $62.02 billion last quarter and above the market expectation of $60.8 billion;

By segment:

Productivity and Business Processes, including Office and LinkedIn, saw revenue grow 12% YoY to $19.57 billion, up from $19.25 billion last quarter and above the market expectation of $19.54 billion. This was driven by a 14% increase in Office 365 subscribers to 80.8 million and a 4% YoY rise in related revenue. Dynamics 365 and LinkedIn also showed steady growth, up 19% (vs. 21% last quarter) and 10% (vs. 9% last quarter), respectively.

The standout performer was Intelligent Cloud, with revenue up 21% YoY to $26.71 billion, higher than last quarter’s $25.88 billion and above the market expectation of $26.26 billion. Azure revenue growth accelerated to 31% YoY from 27% a year ago, though only 1% higher than last quarter’s 30%.

More Personal Computing revenue rose 17% YoY to $15.58 billion, down from $16.89 billion last quarter but still above the market expectation of $15.08 billion.

EPS grew 20% YoY to $2.94 (vs. $2.93 last quarter), above the market expectation of $2.82.

Azure growth improved to 31% YoY from 30% last quarter, beating the market expectation of 28.8%.

Capital expenditures were approximately $14 billion, nearly double the $7.8 billion from a year ago.

Gross margin for the company was 70%, with an operating margin of 45%, above the market expectation of 43%.

Outlook

For Q4, revenue is expected to be $63.5-$64.5 billion, below the market expectation of $64.5 billion.

By segment: Productivity and Business Processes is projected at $19.3-$19.6 billion, Intelligent Cloud at $26.0-$26.3 billion, and More Personal Computing at $14.7-$15.1 billion. Only Intelligent Cloud meets market expectations, while the other two segments are below.

Although Q4 capital expenditures are expected to rise significantly quarter-over-quarter, Microsoft remains optimistic about a 2% increase in full-year FY2024 operating margin compared to FY2023. The company also expects double-digit growth in both revenue and operating profit for FY2025. However, to sustain cloud and AI growth, FY2025 capital expenditures are projected to exceed FY2024 levels.

Summary

This quarter, Microsoft’s revenue and EPS both exceeded expectations. Although operating expenses rose 10%, this was largely due to the impact of the Activision Blizzard acquisition (9%). Capital expenditures also increased from $11.5 billion last quarter, driven by growing cloud and AI demand. Next quarter’s capital expenditures are expected to rise further. However, improved operational efficiency and cost control boosted profitability this quarter.

Azure growth was particularly strong, with demand surging. The number of Azure deals over $100 million grew more than 80% YoY, while deals over $10 million more than doubled. The increase in large contracts indicates heightened interest. Microsoft also offers various AI accelerators (e.g., AMD, NVIDIA, and in-house chips) for customers. As clients adopt and build solutions, Azure is poised to gain more market share. AI services contributed roughly 7% to Azure growth this quarter, up from 6% last quarter. However, Microsoft noted that while some customers are increasing cloud spending, others are cutting back, creating a balanced trend. Additionally, spending this quarter appears less optimistic than last quarter, though the earlier wave of cloud cost optimization has ended.

In More Personal Computing, Windows licensing revenue rose 11% YoY as the PC market recovered. However, Surface laptop sales fell 17%, and Xbox console sales dropped 31%. Search and advertising revenue grew 12%.

On the AI front, Microsoft has aggressively promoted Copilot for enterprises and consumers, with Office AI assistants also launched. Adoption has been swift, with users reporting efficiency gains. Microsoft plans to continue integrating AI across its products and technologies.

What do you think? Feel free to share your thoughts in the comments! If you enjoyed this, don’t forget to like, share, and comment. Most importantly, happy investing!