Microsoft Q4 Revenue Rises 15% Amid Cloud Strength, Xbox and Surface Decline

Microsoft reported a 15% revenue increase to $64.7 billion in Q4, driven by solid cloud performance. Despite this growth, Xbox and Surface revenue continued to decline, highlighting the tech giant's mixed results.

Microsoft Q4 Revenue Hits $64.7 Billion, Driven by Cloud Growth; Xbox and Surface Sales Decline

Microsoft has recently disclosed its fiscal 2024 financial results for the fourth and final quarter. According to The Verge, during the fourth quarter, the software manufacturer generated $64.7 billion in revenue and a net income of $22 billion. Revenue has increased by 15%, while net income has increased by 10%.

Microsoft's Intelligent Cloud revenues, encompassing the company's server products and cloud services, were $28.5 billion, representing a 19 percent increase from the previous year. Nearly 45 percent of Microsoft's revenue is now from this company segment. Microsoft's consumer devices initiative continues to experience a decline even though cloud revenue is once again robust. The income of Xbox hardware has once again decreased, and Surface revenue has now declined for seven consecutive quarters.

The price manufacturers pay to license Windows for laptops and PCs, known as Windows OEM revenue, has increased by 4% yearly. Gartner reported earlier this month that PC shipments had risen for three consecutive quarters. This growth was also observed in Microsoft's Windows OEM over the same three quarters.

Microsoft also introduced its new Copilot Plus PCs after fiscal Q4, with a diverse selection of Qualcomm-powered devices available from June 18 onward. Microsoft introduced two new Surface devices in June: The Surface Laptop 7th Edition and Surface Pro 11th Edition. However, the extent of the sales' influence on device revenue will be apparent in the subsequent quarter.

This implies that Surface revenue, which Microsoft now calls "devices revenue," has declined by 11 percent this quarter. Microsoft's Surface revenue experienced its most recent increase in the first quarter of fiscal year 2023, which concluded on September 30, 2022.

Microsoft altered its hardware portfolio in early 2023 in response to reductions, and the Surface Pro 10 and Surface Laptop 6 for businesses have had minimal revenue impact. All eyes are on the upcoming quarter to determine whether the new Surface Laptop and Surface Pro introductions have contributed to the recovery of device revenue.

According to Amy Hood, Microsoft's Chief Financial Officer, the company's device revenue will continue to decline in the upcoming quarter, with a decline in the low to mid-single digits. Hood anticipates that the revenue generated by Windows OEMs will remain relatively consistent in the forthcoming quarter by the PC market.

Xbox Content and Services Revenue Soars 61% Driven by Activision Blizzard, Despite Hardware Decline

This quarter, Xbox content and services revenue, encompassing Xbox Game Pass, has increased by 61%. Activision Blizzard revenues have once again been the primary source of revenue in this instance, with a net impact of 58 points. Xbox content and services revenue will have increased by 3% year over year, even in the absence of Activision Blizzard revenues.

In February, Microsoft disclosed that Xbox Game Pass has expanded to 34 million subscribers, which includes Xbox Game Pass Core (previously known as Xbox Live Gold) members. Microsoft is preparing to introduce a new Xbox Game Pass Standard plan shortly. This plan is intended to supplant the Xbox Game Pass as a Console offering for new subscribers.

Microsoft recently released Call of Duty: Modern Warfare III on Xbox Game Pass and is preparing to make Call of Duty: Black Ops 6, the upcoming installment in Activision's popular franchise, available on Xbox Game Pass later this year.

The price increases for Xbox Game Pass Ultimate and PC Game Pass will take effect in September. Game Pass Ultimate will be priced at $19.99 monthly, a $3 increase from the current $16.99 monthly. In September, PC Game Pass will also increase to $11.99 monthly.

Despite the significant anticipation surrounding the release of new titles on Xbox Game Pass, console sales continue to be a challenge. Xbox hardware revenue has experienced a substantial decline of 42% this quarter. Later this year, Microsoft will introduce a disc-less Xbox Series X console in white and a new Galaxy Black special edition Xbox Series X unit.

In recent months, Microsoft has also prioritized the message that "no Xbox required" in its cloud streaming initiatives. As Microsoft shifts its focus from solely marketing console hardware, the Xbox TV app has recently been available on select Amazon Fire TV devices.

Microsoft's gaming revenue has increased by 44% despite the subpar Xbox hardware revenue, which was once again bolstered by the additional revenue from Activision Blizzard. Indeed, that revenue increased by 48 points, resulting in a 4% decrease in Microsoft's overall gaming revenue if the company had not acquired Activision Blizzard.

Microsoft will not be providing any updates to its Xbox Game Pass subscriber statistics this quarter. However, the company did disclose a metric regarding active gaming users. During an earnings call, Satya Nadella, Microsoft's CEO, stated that the company has surpassed 500 million monthly active consumers across platforms and devices. "Our content pipeline has never been more robust."

Microsoft Projects Strong Growth in Xbox Content, Cloud, and AI Revenues Despite Hardware Declines

According to Hood, Microsoft anticipates that Xbox content and services revenue will increase in the "low to mid-50s" during the upcoming quarter. Activision Blizzard will contribute 40 points to the overall gaming revenue increase in the mid-30s. Hood asserts that Xbox hardware revenue will "again experience a year-over-year decline."

As anticipated, Microsoft's cloud and Office revenues continued to expand in Q4 2024. The income of Office commercial products and cloud services increased by 12 percent, with Office 365 commercial revenue rising by 13 percent.

Office consumer revenue has increased by three percent year over year. Microsoft 365's consumer subscribers increased by 10 percent, reaching 82.5 million. This quarter, LinkedIn's revenue also increased by 10 percent.

Azure and other cloud services revenue increased 29% this quarter, while server products and cloud services revenue increased 21%. Nevertheless, Microsoft's stock experienced a decline in after-hours trading on the NASDAQ, as analysts had anticipated a higher level of Azure revenue.

Additionally, investors persist in pursuing any indications of revenue growth in AI from Microsoft. This quarter, AI services account for eight points of the revenue growth in Azure and other cloud services, a modest increase from the previous quarter's contribution.

According to Hood, AI growth is surpassing Azure's total revenue. Microsoft anticipates the second half of its 2025 fiscal year will witness further Azure expansion due to infrastructure investments and rising demand. Hood anticipates around 28-29 percent of Azure revenue growth in Q1 2025.

Additionally, Microsoft is providing employees with a one-time "cash award." The Verge has obtained an internal memo indicating that Microsoft employees receive an additional incentive equivalent to 10-25 percent of their annual bonus.