Strong growth in cloud and gaming segments
One of the main drivers of Microsoft’s impressive performance was its cloud business, which includes Azure, Office 365, Dynamics 365, and LinkedIn. The company reported a 24% increase in its Microsoft Cloud revenue, reaching $31.8 billion in the first quarter. Azure, the company’s flagship cloud computing platform, grew 51% year-over-year, accelerating from the previous quarter’s 46% growth. Azure also saw a rebound in its consumption-based revenue, which reflects the actual usage of cloud services by customers.
Another highlight of Microsoft’s earnings report was its gaming segment, which benefited from the strong demand for its Xbox Series X and S consoles, as well as its Game Pass subscription service. The company said that gaming revenue increased 40% year-over-year, reaching $4.6 billion in the first quarter. Game Pass subscribers grew to 25 million, up from 23 million in the previous quarter. Microsoft also noted that its acquisition of video game publisher Activision Blizzard, announced in January 2023, is still pending regulatory approval and is expected to close in fiscal year 2024.
Other segments also performed well
Microsoft’s other segments also delivered solid results in the first quarter. The company’s productivity and business processes segment, which includes Office, Dynamics, and LinkedIn, grew 13% year-over-year, reaching $15.6 billion in revenue. LinkedIn was a standout performer, growing 37% year-over-year and surpassing $10 billion in annual revenue for the first time.
The company’s personal computing segment, which includes Windows, devices, and search advertising, grew 9% year-over-year, reaching $13.4 billion in revenue. Windows revenue increased 11%, driven by the strong demand for PCs amid the ongoing pandemic and the launch of Windows 11 in October 2023. Devices revenue increased 16%, boosted by the sales of Surface laptops and tablets. Search advertising revenue increased 17%, reflecting the recovery of the online advertising market.
Positive outlook for the next quarter
Microsoft also provided guidance for its fiscal second-quarter earnings, which are expected to be released in January 2024. The company expects its revenue to be between $58.5 billion and $59.5 billion, representing a growth of 12% to 14% year-over-year. The company also expects its operating income to be between $20 billion and $20.5 billion, representing a growth of 9% to 11% year-over-year.
Microsoft’s CEO Satya Nadella expressed his confidence in the company’s future prospects, saying that “with copilots, we are making the age of AI real for people and businesses everywhere”. He added that “we are rapidly infusing AI across every layer of the tech stack and for every role and business process to drive productivity gains for our customers”.