Microsoft posts $52.7 billion revenue in latest quarter with weak Xbox and Windows results

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It's that time of the year again, where Microsoft shares its latest earnings for the benefit of investors and the awareness of the public. While it has experienced a relatively strong quarter primarily due to strong growth in cloud and enterprise sectors (Office, LinkedIn, Dynamics, Server), there are a few worrying aspects in the latest results as well.

Rather than making you go through a long-form review of Microsoft's financial figures for FY23 Q2 ending on December 31, 2022, we have decided to list the highlights in bullets this time for better readability. You can view these below:

  • Revenue: $52.7 billion (+2% compared to same quarter last year)
    • Productivity and Business Processes: $17.0bn (+7%)
    • Intelligent Cloud: $21.5bn (+18%)
    • More Personal Computing: $14.2bn (-19%)
  • Gross margin: $35.3bn (+1%)
  • Operating income: $20.4bn (-8%)
  • Net income: $16.4bn (-12%)
  • Diluted earnings per share: $2.20 (-11%)

As can be seen, despite exhibiting strong growth in cloud and business, its revenue gains are mostly offset by the comparative decrease in the More Personal Computing category, also resulting in a lower net income and diluted earnings per share. It is important to understand that Microsoft isn't losing money, its growth is just lower compared to the same period in the last fiscal year.

Perhaps most interesting is the lack of growth in the More Personal Computing sector, which primarily comprises of consumer devices and services:

  • Windows OEM and Commercial revenue down by 39% and 3% respectively due to weak PC demand and low standalone product sales
  • Xbox content and services decreased by 12% due to lack of first-party content despite growth in Xbox Game Pass
  • Devices revenue reduced by 39% due to weak PC demand and "execution challenges" when it comes to launching new products
  • Search and news advertising revenue excluding traffic acquisition costs up by 10% because of Xandr acquisition and higher search volumes

CEO Satya Nadella highlighted the increased focus in AI moving forward, also driven by Microsoft's OpenAI investments:

The next major wave of computing is being born, as the Microsoft Cloud turns the world’s most advanced AI models into a new computing platform. We are committed to helping our customers use our platforms and tools to do more with less today and innovate for the future in the new era of AI.

In the next quarter, Microsoft expects revenue to be around $50.5 billion to $51.5 billion with operating margin decreasing by 2% YoY, which means that investors can expect similar results after three months too. Most notably, Microsoft expects its More Personal Computing revenue to decline further to $11.9-12.3 billion. Although the situation isn't really dire, it's clear that with recent layoffs, Microsoft has its work cut out.

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