Microsoft post FY20 Q2 earnings with Personal Computing sector beating cloud revenue for the quarter

Microsoft just posted its FY20 Q2 earnings and the company, by most accounts, exceeded expectations on a myriad of fronts.

We mentioned earlier today, that the street expectations had the company posting an ESP of $1.32, but Microsoft managed to rouse a $1.51 for the quarter as well beating expected revenue gains of $35.6 billion, hauling in $36.9 billion for its Q1.

According to Microsoft’s press release for its earnings, the company “returned $7.9 billion to shareholders in the form of dividends and share repurchases in the first quarter of the fiscal year 2020, an increase of 28% compared to the first quarter of the fiscal year 2019.”

Office Commercial Products

Revenue in Productivity and Business Processes was $11.8 billion and increased 17% (up 19% in constant currency), with the following business highlights:

• Office Commercial products and cloud services revenue increased 16% (up 18% in constant currency) driven by Office 365 Commercial revenue growth of 27% (up 30% in constant currency)
• Office Consumer products and cloud services revenue increased 19% (up 20% in constant currency) with continued growth in Office 365 Consumer subscribers to 37.2 million
• LinkedIn revenue increased 24% (up 26% in constant currency)
• Dynamics products and cloud services revenue increased 12% (up 15% in constant currency) driven by Dynamics 365 revenue growth of 42% (up 45% in constant currency)

Intelligent Cloud

Revenue in Intelligent Cloud was $11.9 billion and increased 27% (up 28% in constant currency), with the following business highlights:

• Server products and cloud services revenue increased 30% (up 32% in constant currency) driven by Azure revenue growth of 62% (up 64% in constant currency)
• Enterprise Services revenue increased 6% (up 7% in constant currency)

More Personal Computing

Revenue in More Personal Computing was $13.2 billion and increased 2% (up 3% in constant currency), with the following business highlights:

• Windows OEM revenue increased 18% (up 18% in constant currency)
• Windows Commercial products and cloud services revenue increased 25% (up 27% in constant currency)
• Surface revenue increased 6% (up 8% in constant currency)
• Search advertising revenue excluding traffic acquisition costs increased 6% (up 7% in constant currency)
• Xbox content and services revenue decreased 11% (down 9% in constant currency)

Breaking down the numbers we see that of the $36.9 billion revenue total, Microsoft’s Windows division was able to contribute a bit more significantly this quarter than in prior, thanks to a strong PC market and its self-imposed end-of-life cycle for Windows 7.

The numbers coming out of the Surface division were also very strong and are cresting at a $2 billion business, marking an almost first for the flagship hardware line.

As expected, Microsoft’s Xbox gaming business slumped for the quarter with no new exclusives or accessories to drive console purchases.

The market for additional Game Pass subscriptions is meeting saturation levels. However, Microsoft credits the game Fortnite with its lackluster performance in the three month period.

The famed battle royale shooter performed exceptionally well the prior year and artificially raised Microsoft’s content and services numbers due to the amount of loot purchased through its marketplace for the game.

On the whole, Microsoft had one of its best quarters to date and the company is poised to make similar gains in the coming ones.

It’ll be interesting to see how Microsoft’s 2020 investments in xCloud, the untested market of dual-screen hardware in the Neo and Duo, as well as its cloud initiatives such as partnerships with Salesforce and the Department of Defense, effect its YoY.