In the wake of ChatGPT's fire, Microsoft seems to have found a way to convert AI (artificial intelligence) into revenue. On January 30, local time, Microsoft released its financial report for the second quarter of fiscal year 2024 after the U.S. stock market. This is also the first financial report after the acquisition of Activision Blizzard, but compared to the game business, the AI business has performed quite well. The market's unabated enthusiasm for cloud computing and AI has pushed Microsoft, which recently became the world's most valuable asset, to achieve record quarterly revenue in the last three months of 2023.
Cloud business exceeds expectations.
According to the financial report, for the three months ended December 31, 2023, Microsoft's revenue reached 620US$200 million, a year-on-year increase of 18%; Net profit increased by 33% year-on-year to 218$700 million. In terms of business segments, during the reporting period, Microsoft's intelligent cloud business revenue reached 258$800 million, compared to analysts' expectations of $252$900 million is 20 per cent higher. Productivity and Business Process segment revenue 192$500 million, personal computing business revenue of 168$900 million.
At the same time, the intelligent cloud is leading the growth rate in Microsoft's business. Driven by Azure, Microsoft's intelligent cloud business revenue increased by 20% year-on-year in the quarter, and its gross profit margin increased to 72%. During the reporting period, Microsoft's R&D investment reached 71$4.2 billion, up 4% year-over-year and 7% sequentially. In November 2023, Microsoft launched its self-developed chip Azure Maia at the Microsoft Ignite conference to accelerate the training and inference of large models in the cloud, and at the same time launched the Microsoft Azure Cobalt CPU processor.
Over the past 12 months, Microsoft's stock price has risen by more than 60%. As early as January 12, Microsoft surpassed Apple to become the world's most valuable company. A week ago, on the 24th, Microsoft's market value exceeded $3 trillion, becoming the first company to cross the $3 trillion threshold after Apple.
On the day of the earnings release, Microsoft's shares closed at 408 per share$59, down 028%, with a total market capitalization of 304 trillion dollars, higher than Apple's 2$9 trillion, which fell more than 2% in after-hours trading. However, with the top management giving positive guidance at the post-earnings meeting, Microsoft's stock price basically recouped its losses.
It is reported that Microsoft CEO Satya Nadella (Satya Nadella) revealed the list of functions of the AI tool Copilot after the performance meeting. According to Nadella, Copilot can provide summaries of documents or meeting minutes, in addition to more complex tasks such as converting a Word document into a PowerPoint document.
Nadella also highlighted the contribution of AI businesses to this. He said Microsoft currently has 5One-third of the 30,000 Azure AI customers were new to the board last year. And Amy Hood, the company's CFO, said that 6% of the growth of Azure and other cloud services is related to artificial intelligence.
Next, the investment in artificial intelligence will continue. Microsoft has invested $13 billion in OpenAI over the past few years, securing its non-voting board seat after the OpenAI high-level incident late last year.
Big layoffs in the game.
In addition to the AI business, another highlight of Microsoft's earnings report is in games. In October last year, Microsoft finally completed the acquisition of Activision Blizzard and included it in its Xbox division in its earnings report.
Activision Blizzard is a world-renowned game publisher with titles such as Call of Duty, World of Warcraft, StarCraft, and Diablo. As early as the beginning of 2022, Microsoft announced that it would acquire Activision Blizzard, but it encountered resistance from peers and regulatory forces, and finally completed the acquisition after nearly two years.
As a result, Microsoft became the world's third-largest gaming company. Activision Blizzard was absorbed into Microsoft's Xbox Studio, and Microsoft's game lineup was immediately strengthened, with a number of games being logged on to the platform and gradually included in the Game Pass subscription service, which greatly improved Xbox's competitiveness.
This is Microsoft's first quarterly earnings report since the completion of the acquisition, and the acquisition of Activision Blizzard did not disappoint Microsoft. Xbox revenue** 49%, while Xbox content and services revenue increased by 61%. Microsoft's gaming division revenue was also pushed up to $7.1 billion, which has surpassed the Windows division by 52$600 million.
However, the earnings report specifically pointed out that Activision Blizzard brought $2 billion in net income to the company, but the acquisition and integration costs were as high as 9.$300 million, operating expenses $15$900 million, resulting in a business appearance of 4$400 million loss.
This also explains Microsoft's aggressive layoffs after completing the Activision Blizzard acquisition. Last week, Microsoft announced that it would lay off 1,900 people in the gaming division, accounting for 8% of the total number of employees in the gaming division, involving Activision Blizzard, Zenimax and Xbox teams, but with Activision Blizzard dominantly. Microsoft said this is due to the fact that the leadership of Microsoft Gaming and Activision Blizzard is working to align strategy and execution plans with a sustainable cost structure.
Those who were still in meeting last Wednesday were wiped out on Friday. The source of the Activision Blizzard layoffs just told a reporter from Beijing Business Daily, "This is the first time I have experienced layoffs, and I feel that everything happened so suddenly, because I was very busy with work before, and there was no news of layoffs at all." I really didn't know how to digest this information at the time. Because it was a large group, there were no individual HR interviews, no interviews with the boss, only brief notices and news headlines. ”
Blizzard President Mike Ybarra and Chief Design Officer Allen Adham will also be leaving the company, Microsoft's vice president of gaming business, Matt Booty, wrote in a separate memo, and Ybarra confirmed the news on social media.
"Many of my colleagues have worked at Blizzard for more than ten years, and it's hard to imagine how sad they are. Everything was fine the day before, and the next day the work was gone. What's more, the project that is under development was really fun for our staff to test it internally, but players will never experience the feeling of playing this game again."
Zhang Shule, an Internet ** person, said that the layoffs will bring inevitable pains to Activision Blizzard's game business, and how to make Activision Blizzard's heavyweight IPs such as "Overwatch" and "World of Warcraft" for their own use, and truly empower the Xbox business, is the next problem that Microsoft needs to solve.
In the longer term, Zhang Shule believes that Microsoft regards the addition of content on the current Xbox console as a small achievement, and its strategic direction is to prepare content for the upcoming new round of next-generation game platforms (perhaps metaverse platform carriers). The foothold of its next-generation platform may also become a broader multi-screen existence like the Switch, which combines handheld, console and PC online games, and the real triple-A masterpieces and classic IPs will become the golden signboard to attract players.
Beijing Business Daily reporter Fang Binnan Zhao Tianshu.