Microsoft announced its financial results for the second quarter of fiscal year 2024 as of the end of December after the U.S. stock market on January 30, and the overall performance of this quarter is remarkable, but it has failed to bring further surprises under the obviously high valuation, the main points are as follows:
1.Revenue growth recovered, and profit release was even betterLooking at the overall results first, Microsoft achieved revenue of $62 billion in the quarterSlightly higher than expectedof 61.1 billion. The nominal year-on-year growth rate also increased significantly to 176%。However, after excluding the additional $2 billion in revenue contributed by Activision Blizzard, the comparable growth rate was 136%, a slight increase from the previous quarter.
StillWith the recovery of Azure and Office 365 business, as well as more critical cost reduction, cost controlOperating margins for the quarter were nearly 1pct higher than expected. Although it is not as strong as the nominal 33% year-over-year growth suggests(Last year's base was low, and the absolute value of actual profit only increased by 100 million month-on-month).But it's remarkable
2.Core Azure Office 365 growth is resilient, but no surprises:Microsoft's two core products, Azure and Commercial Office 365, reported revenue growth rates in the quarter, excluding the impact of foreign exchange rates28% and 16%, which were flat and down 1pct year-on-year, respectively. In other words, while the AI wave is further fermenting, the growth momentum of the two major products that Microsoft has benefited from has not gone any further. Affected by this, the revenue growth rate of the two major segments of smart cloud and productivity process was also flat or slightly slowed, which was basically the same as expected.
3.Excluding acquisitions, the seemingly glamorous personal computing segment has only stabilized: the sector's nominal revenue growth rate reached 19% year-on-yearThe increase is larger. However, on the one hand, it was due to the extremely low base of the same period last year (-18% growth rate at that time), and on the other hand, the impact of Blizzard was combined. Excluding this part of the impact, the comparable growth rate is actually 4Around 3%, which is only a slight improvement from the previous quarter. The actual situation is more that after PC shipments bottomed out and stabilized, the company's personal business segment also stabilized.
4. The "surplus grain" indicator also shows signs:Similar to the trend of growth in the Smart Cloud and Productivity Processes segment in the quarter, which was flat or slow"Surplus" indicators such as contract balances and deferred revenues have also shown a marginal slowdown or flattening trend.
Among them,Balance of outstanding contracts(i.e., deferred revenue for which payments have been received but not recognized + amount of payments that have not been received but contracts have been signed) is 222 billionThe year-on-year growth rate also continued to decline by 1pct to 17%, and it continues to slow. Reflects the increase in the current quarterAccording to the company, the actual growth rate of the amount of new corporate contracts after excluding the impact of exchange rates has also slowed from 17% to 9%.
As for deferred revenue, the year-on-year growth rate of deferred revenue in the smart cloud and productivity process segments also fell by 1pct quarter-on-quarter.
5. Cost control contributes more profit than efficiency increaseCompared with the revenue level, the growth rate of many indicators has generally shown signs of marginal declineMicrosoft's profit performance in the quarter was still remarkable, mainly due to the fact that the operating margin increased by nearly 4% year-on-year9pct。
Decompose,Gross margin increased by approximately 15pctExcluding the impact of the extension of the depreciation period, the gross profit margin of the smart cloud and productivity segments both increased by about 1pct, according to the company, mainly due to the recovery in demand for Azure and Office 365.
And at the cost level,The company's operating expense rates for all three categories generally continued to decline, and the total rates of the three fees decreased by 34pct, in other words, compared with the increase in gross profit margin, Microsoft's profit improvement is more due to the savings after layoffs and cost control. However, we note that spending has returned to growth sequentially in the quarter, as economic expectations improve and demand for AI products is being promoted.
Look at it in sections, the operating profit performance of the smart cloud and productivity process segments is still good. Operating profit in both segments came in 9% and 11., respectively, above expectations7%。The operating margins of these two segments did not fall back to their original levels as quickly as expected after the positive depreciation period, but were basically flat sequentially.
ButThe operating profit of the Personal Computing segment decreased by approximately $0.9 billion sequentially, dragging down the Group's overall profit. One of the parallel Activision Blizzard produced about 4The operating loss of 400 million yuan is one of the main reasons.
6. Guidance for the next quarter:For the next quarter's results, the company's guidance for the three major segments of revenue growth is slowing further, and the total revenue of 60.5 billion is slightly lower than the expected 61 billion. Growth guidance is slightly weaker.
Profit continued to outperform revenue, guiding operating profit of $26 billion for the next quarter, better than expectations of $24.7 billion. Also due to market expectations that operating profit will return to its original level after the depreciation cycle, the company's guidance for operating margin is basically flat sequentially.
Dolphin Investment Research Viewpoint:
Overall, from the absolute performance of Microsoft in the quarter, the revenue rate continued to increase slightly sequentially (excluding the impact of consolidation), while the profit increased by more than 30% year-on-year.
However, while the AI wave has significantly pushed Microsoft's valuation to a higher level, the growth of the company's core intelligent cloud and productivity segments has not gone further, but has slowed down marginally, and the guidance for the next quarter also continues this trend. Dolphin Jun believes that under such a valuation, such a performance is not enough to satisfy investors.
From a profit perspective, although the company's profit margin did not fall to the level before the depreciation period adjustment as expected, it was relatively flat, which was a surprise. In other words, operating margins are not expected to continue to rise in the near term, and combined with the guidance, the operating profit of $27 billion in the previous quarter is already the recent peak.
In a word, there is not much to blame for Microsoft's performance in this quarter, but under the "original sin" of high valuation, it has not continued to exceed expectations, that is, it will not advance or retreat.
The following is a detailed review of the financial report:
1. Core business: Growth was resilient, but failed to reach new highs
1.1 Azure growth was flat
of the wisdom cloud sectorAzure, the flagship product, achieved revenue of $19.1 billion in the quarterContinuing to hit record highs,Nominal year-on-year growth increased by 1pct to 30% QoQ and remained at 28% after adjusting for foreign exchange effects.
So in a nutshell,The Azure cloud business has emerged from the IT spend optimization cycle and has maintained good growth, but the AI boom has not yet led to a significant acceleration in Azure's revenue.
According to the projections,The revenue growth rate of other businesses in the sector (including SQL Server, Visual Studio, enterprise consulting services, etc.) has once again slipped into negative territory. The trend of Azure and traditional server business is still obvious.
Overall, with the contribution of AzureSmart Cloud SectorThe nominal growth rate also increased by 1pct, compared to a real growth rate of 19%. Overall revenue was $25.9 billionSlightly above the company's guidance and market expectations of 25.3 billion.
1.2 Copilot helped Office raise prices, but the number of users still slowed down
Another core business of the companyEnterprise Office 365 achieved revenue of $11.3 billion in the quarter, and the nominal growth rate failed to continue to improve, but instead fell 1pct to 17% quarter-on-quarter. Adjusted for the impact of foreign exchange rates, real growth was also lower at 16%. It is inferred from thisThe launch of Copilot didn't give a significant boost to Office growth.
From the perspective of volume and price: 1) This quarterEnterprise Office 365 subscriber customers grew 9% year-over-year, continuing to trend as user penetration approaches saturation
2) Valence perspective,Office 365 average order rate increased 7% year-over-year in the quarter, consistent with the previous quarterAccording to Dolphin Investment Research, ASP has increased by about $1 month-on-month1。
We consider pricing at up to $35 per monthAfter the release of Office Copilot, the unit value of Office 365 business has indeed boosted to a certain extent, but it should be that the current product functions are still in the early stage, the actual number of users is not much, and the contribution to the performance is not so considerable.
As for the other businesses in the productivity segment:
Similar to the enterprise office business, the Dynamics business also showed a slight decrease in revenue growth margin of 1pct to 21%.
As for the revenue growth rate of other businesses, the revenue growth rate of the more important LinkedIn business achieved a revenue of about 4.2 billion, a year-on-year growth rate of 8%.
Due toCore businesses such as Enterprise Office and Dynamics both saw a slight decline of 1 PCT in nominal terms, while other businesses improved slightly, with overall revenue growth in the Productivity Process (P&BP) segment flat at 13%. Actual revenue was also broadly in line with $19 billion.
Second, excluding the impact of consolidation, the personal PC sector improved slightly
The personal computing segment grew at a nominal year-over-year rate of 19% during the quarterThe increase is larger. On the one hand, this is due to the very low base of the same period last year (-18% growth at that time), mainly due to the completion of the acquisition of Activision Blizzard, which contributed about 2 billion incremental revenue. If this part of the impact of mergers and acquisitions is excluded, the comparable growth rate is only 43% or so,Compared to last season, the improvement is relatively slight.
Actual revenue of $16.9 billionThis is basically in line with the expected 16.8 billion, thereforeThe performance of the personal computing sector in the quarter was largely expected, not as surprising as it might have been in name.
Specifically, 1) Windows OEM revenue increased by 9% year-on-year, which is a significant improvement from the 4% growth rate in the previous quarter. This is mainly due to the fact that PC shipments bottomed out in 4Q23**, and Windows revenue and PC shipments are highly correlated.
2) The hardware sales revenue dominated by the Surface product line continued to decline by 9%, although it was still **, but the decline was also significantly narrowed;
3) After the acquisition of Blizzard, Xbox content and hardware revenue in the gaming business increased by 61% and 3%, respectively;
The growth rate of advertising business, which is more related to macro prosperity, increased by 8% after excluding the cost of buying volume, compared with 10% in the previous quarter.
Third, the revenue growth is good, but the momentum has not continued to improve
Overall,Microsoft posted revenue of $62 billion in the quarter, slightly higher than the consensus of 61.1 billion, with nominal growth increasing to nearly 18% from 13% in the previous quarter. However, after excluding the 2 billion revenue contributed by Activision BlizzardThe actual comparable growth rate is about 136%, a slight increase from the previous quarter.
In terms of sub-sectors, the growth rate of smart cloud and personal computing business is actually flat after excluding the impact of exchange rates, in other words, Microsoft's growth momentum has not continued to rise under the impetus of AI.
Fourth, the revenue to be recognized was also stable and declining
To sum up, Microsoft's core businesses such as Azure and Office 365, as well as the revenue of the productivity and smart cloud segments, either declined slightly by 1-2pct marginally or remained flat sequentially after excluding the impact of exchange rates, and did not continue to accelerate.
And from"Surplus" indicators such as contract balances and deferred revenues have also shown a marginal slowdown or flattening trend.
Let's start with the long-term "surplus grain".At the end of the quarterBalance of outstanding contracts(i.e., deferred revenue for which payments have been received but not recognized + amount of payments that have not been received but contracts have been signed) is 222 billionThe year-on-year growth rate also continued to decline by 1pct to 17%, still in a marginal slowdown trend, and there was no reversal.
and reflect the increase in the current quarterAccording to the company, the actual growth rate of the value of new corporate business contracts after excluding the impact of foreign exchange has slowed from 17% to 9%. According to the estimation of Dolphin Investment Research, the amount of new contracts signed this quarter has decreased year-on-year.
Deferred revenue, the more certain, short-term "surplus", was less than $46 billion in the quarter (the vast majority of which will be recognized as revenue within a year), up 16% year-over-year, but mainly due to the significant amount of deferred gaming revenue from the consolidation of Activision Blizzard.
If you look at it in a broken down,Both the Smart Cloud and Productivity Process segments saw year-over-year revenue growth of 12%, down 1pct quarter-over-quarter from the previous quarter. In the Personal Computing segment, deferred revenue increased by 56% year-over-year due to consolidation.
Fifth, compared with Tili, fee control contributes more incremental profits
At the revenue level, the growth rate of both quarterly revenue and potential revenue indicators generally showed signs of marginal decline, or at least failed to improve further. There is no significant difference from market expectations. However, Microsoft's profit performance this quarter is still remarkable.
1) Gross profit for the quarter was $42.4 billion, with gross margin of 684%, compared to 681% is slightly higher, and 15pct。According to the company's explanation, after excluding the impact of the change in depreciation periodGross margins in the Productivity Process, Smart Cloud, and Personal Computing segments each increased by approximately 1pct year-over-year. The main reasons for the improvement in gross margin were the recovery of Azure and Office 365 businesses, respectively.
2) On the costThe company's operating expense rates for all three categories generally continued to decline. Among them, the R&D expense ratio decreased by 15pct, which also decreased by 03%；The marketing and administrative expense ratio decreased by 07pct and 12pct, but there has been an increase month-on-month.
In a nutshell,The total rate of the three fees decreased by 34pct, in other words, compared with the increase in gross profit margin, the main improvement in Microsoft's profit is actually the savings after layoffs and cost control. However, with improving economic expectations and demand for promoting AI products, spending has returned to growth quarter-on-quarter.
As a result, Microsoft's operating profit for the quarter reached $27 billion, up 33% year-over-year. Although the growth rate seems to be very high, it is mainly due to the impact of last year's low base. In terms of the absolute amount of profits, while revenue increased by nearly $5.5 billion sequentially, profit increased by only about $100 million.
4) Look at it specifically, the operating profit performance of the smart cloud and productivity process segments is still good. Operating profit in both segments came in 9% and 11., respectively, above expectations7%。The main reason is:The operating margins of these two segments did not fall back to their original levels as quickly as expected after the positive depreciation period. ActuallyIt is still basically the same as the previous quarter and remains at a historical high.
OnlyThe operating profit of the personal computing segment decreased by about 900 million sequentially and was also significantly lower than expected. One of the parallel Activision Blizzard produced about 4The operating loss of 400 million yuan is one of the main reasons.
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