Microsoft Q2 2024: Gaming takes over Windows

Microsoft just post Its financial results for the second quarter of 2024. The software maker reported $62 billion in revenue and $21.9 billion in net profit in the second quarter. Sales rose 18 percent and net profit rose 33 percent.

It was the first quarter in which Microsoft reported profits as a $3 trillion company, and the first time the company reported additional revenue from its acquisition of Activision Blizzard. This additional gaming revenue made Microsoft the third largest business behind Windows.

Office and cloud revenues are the highest, contributing about 60 percent of Microsoft’s total revenue. While Windows OEM sales recovered, hardware revenue from Surface sales continued to decline in the quarter.

Microsoft warned that hardware sales would decline this quarter, down 9 percent. Microsoft CEO Satya Nadella said last quarter that “unit sales in the PC market were near pre-pandemic levels,” so it’s possible the Surface hasn’t recovered as well. This is after Microsoft launched the new Surface Laptop Studio 2, Surface Laptop Go 3 and even Surface Go 4 at the end of last year. Microsoft’s hardware sales include Hollens and PC accessories, and sales have been declining for more than 12 months.

But Windows performs better. OEM revenue, the price computer makers pay Microsoft to install Windows on laptops and PCs, rose 11 percent in the quarter. Windows OEM sales suffered throughout Microsoft’s 2023 fiscal year, but it now represents two straight quarters of growth compared to five quarters of decline in hardware sales.

Speaking of hardware, all eyes are on Microsoft Gaming due to the company’s recent earnings. Microsoft is now reporting revenue from Activision Blizzard as part of its gaming division, boosting overall Xbox content revenue.

Sales of Xbox content and services, including Xbox Game Pass, grew 61 percent This is largely due to Activision Blizzard’s revenue, so it’s hard to immediately understand how the Xbox would have functioned without this huge addition.

According to Microsoft, the net impact of the Activision Blizzard acquisition was just over $2 billion in revenue, but integration costs, transaction costs and other revenue costs totaled $930 million. When combined with other operating expenses ($1.59 billion), this resulted in an operating loss of $440 million.

We need more guidance from Microsoft on what Activision Blizzard’s earnings will look like next quarter, especially as Microsoft continues to integrate the company into its larger Microsoft Gaming division. As the acquisition of Activision Blizzard was finalized, Microsoft laid off 1,900 workers in its gaming division earlier this month, mostly affecting Activision Blizzard employees. Microsoft has also been overhauling its Xbox management in recent months, even naming a new Blizzard president earlier this week.

Xbox also grew 3 percent after a key holiday quarter. Microsoft is running a series of promotions for the Xbox series Microsoft’s total gaming revenue grew 49 percent, driven largely by sales of Activision Blizzard.

It’s an important quarter for gaming at Microsoft, as it’s now the company’s third-largest division. Gaming contributed $7.11 billion in revenue in the quarter, more than $5.26 billion from Windows but less than $13.47 billion from Office and cloud services and $23.95 billion from the giant’s server and cloud products.

Again, there are no new numbers for Xbox Game Pass subscribers. According to Microsoft, Xbox Game Pass reached 25 million subscribers in January 2022, but we haven’t received an update in two years. Nadella announced this in last quarter’s results Starenfeld Help expand Xbox Game Pass. “At launch, we set the record for adding the most Game Pass subscriptions in a single day,” he said.

The Microsoft Office division once again performed well: Overall productivity and income from operations grew 13 percent year over year. This was primarily due to Office 365, where business license growth increased by 9 percent.

The number of Microsoft 365 consumer subscribers is now 78.4 million, up nearly 16 percent from the previous year. Microsoft launched Microsoft 365 Basic subscription last year for $1.99 per month, which continues to increase the total number of subscribers.

Commercial office product and cloud services revenue also grew 15 percent year-over-year, thanks to a 17 percent increase in Office 365 commercial revenue. That means Microsoft ended the quarter with more than 400 million paid commercial licenses for Office 365, a clear sign that the company is continuing its business transition to cloud-based versions of Office.

Microsoft has sold Copilot for Microsoft 365 in recent months, but the company has not detailed how sales of AI add-ons affect its revenue. “We’ve moved from talking about AI to implementing AI,” Microsoft CEO Satya Nadella said in the company’s earnings release. “By integrating AI into every layer of our technology, we attract new customers and help realize new benefits and productivity improvements in every sector.”

The biggest impact of Microsoft’s AI ambitions will come from its server-side investment in Azure OpenAI. “Azure and other cloud services have grown 30 percent year-over-year … and our AI services have had a six-point contribution of those growth rates,” said James Ambrose, director of investor relations at Microsoft, in a call with Azure. . edges.

Microsoft’s overall intelligent cloud business generated $25.9 billion in revenue this quarter, up 20 percent year-over-year. Most of this revenue was generated by Azure.

Microsoft will now host an earnings conference call at 5:30 pm ET/3:30 pm PT We’ll update this article with Microsoft’s guidance for the upcoming quarter and any comments regarding the quarter.