Microsoft FY18 Q2 earnings: $28.9 billion in revenue backed by cloud, Office growth

Microsoft logo
Microsoft logo (Image credit: Windows Central)

Microsoft has released its earnings report for FY18 Q2 (opens in new tab), showing revenues of $28.9 billion and $7.5 billion in non-GAAP net income. That's up from the same period a year ago, during which Microsoft brought in $25.8 billion in revenue and $6.2 billion in net income.

Here are the highlights from this quarter's release:

  • Revenue was $28.9 billion and increased 12%
  • Operating income was $8.7 billion and increased 10%
  • GAAP net loss was $(6.3) billion and non-GAAP net income was $7.5 billion -GAAP diluted loss per share was $(0.82) and non-GAAP diluted earnings per share was $0.96 -GAAP results include a $13.8 billion net charge related to the Tax Cuts and Jobs Act (TCJA)

As has been a trend over recent quarters, a large portion of Microsoft's growth in this quarter was due to a continued focus on its cloud and productivity businesses. Revenues in Intelligent Cloud, for example, were up by 15 percent to $7.8 billion, largely driven by Azure revenue growth, which was up by 98 percent. Likewise, revenue in Productivity and Business Processes was up to $9 billion, which was a total increase of 25 percent year-over-year. Helping to push that up was Office 365, which saw commercial revenue growth of 41 percent. Office 365 consumer subscribers also increased to 29.2 million in the quarter. For its part, LinkedIn contributed revenue of $1.3 billion, Microsoft says.

Moving on to the More Personal Computing category, which encompasses Windows OEM revenue, Surface, gaming and more, revenue showed growth of 2 percent overall. Of note is that gaming revenue was up 8 percent, due in part to Xbox hardware revenue growth from the launch of Xbox One X. Curiously, search advertising revenue led this category with a 15 percent increase in revenue. Here are the highlights:

  • Windows OEM revenue increased 4% (up 4% in constant currency) driven by OEM Pro revenue growth of 11%
  • Windows commercial products and cloud services revenue decreased 4% (down 5% in constant currency) due to the impact of a prior year large deal
  • Gaming revenue increased 8% (up 8% in constant currency) driven by Xbox hardware revenue growth from the Xbox One X launch
  • Search advertising revenue excluding traffic acquisition costs increased 15% (up 15% in constant currency) driven by higher revenue per search and search volume
  • Surface revenue increased 1% (relatively unchanged in constant currency)

As usual, Microsoft will hold a conference call and webcast at 2:30 p.m. PT / 5:30 p.m. ET on its investor site (opens in new tab) to discuss the earnings.

Dan Thorp-Lancaster

Dan Thorp-Lancaster is the former Editor-in-Chief of Windows Central. He began working with Windows Central, Android Central, and iMore as a news writer in 2014 and is obsessed with tech of all sorts. You can follow Dan on Twitter @DthorpL and Instagram @heyitsdtl

  • Well... damn.
  • Yeah but they still can't afford a phone, so....
  • Mobile first, cloud first
  • actually to correct you... "Cloud First, Office First, everything else last"
  • Nadella invented the cloud, Ballmer should have thought of Office 365 and Azure.
  • I'm pretty sure Ballmer was CEO during the times those products were created...
  • I'm pretty sure Nadella is employee of Microsoft since 1992. Previous positions held by Nadella include:
    President of the Server & Tools Division (9 February 2011 – February 2014)
    Senior Vice-President of Research and Development for the Online Services Division (March 2007 – February 2011)[30]
    Vice-President of the Business Division
    Corporate Vice-President of Business Solutions and Search & Advertising Platform Group
    Executive Vice-President of Cloud and Enterprise group
    (Wikipedia) He might not started the cloud business but he's definitely the ' man of the cloud' at Microsoft. There's a reason why he is the CEO now.
    And Azure was created in 2008 (-2010) exactly in the time he was in the position.
  • Actually Nutella started as janitor and idiot HR confused his name with someone called Nadella. Now he's just riding the organic cloud increase to get his $8M bonus, and when cloud comoditises in a few years it's back to the toilet for him, laughing with glee along the way at all of the H1Bs he allowed in and the kickbacks from the India government...
  • Stopped reading at "nutella"
  • is that sarcasm?
  • I think the best answer is to connect everything, ecosystem first. How do you do IOT (e.g. water station & water metes) if you don't have a cloud infrastructure & implementation like UWP?
    How do you do XPA & GamePass without UWP and cloud sync?
    Why code & QA for 2 separate Windows (WinPhone & PC) instead of one (ARM and PC)?
    How likely are the chances for a user to have 2nd thoughts before leaving a platform if all his/her investment (app/game lib & saves) get reset every time when he/she buys a new phone or console?
  • Cloud, AI, Mixed reality and Gaming.
  • I don't know who told your "mobile" meant mobile phones.
    It was never supposed to mean phones but rather the mobility of the Microsoft experiences.
  • ..and they still fail at where consumers are needed most, sucks!!
  • Kenzibit,  THEY DONT CARE!  they are making money hand over fist!
  • I agree bro, just that it really hurts me considering how they left us (faithful consumers in the Microsoft eco) in the dust with lies.
  • Still it's not a smart move abandoning consumer. He just got lucky.
  • Don' think it's luck. He's the one that's connecting the resources.
  • Nope.  he was brought in as the cloud man.   Working out great.   
  • Do they need consumers with numbers like these? And vice versa do consumers even need Microsoft to cater to them anymore than they do already? Maybe its time to accept that Microsoft's success is where it belongs and forget about the whole idea of them being relevant to or trying to appeal to "consumers".
  • Wow theefman,  Someone gets it.  
  • Nah, less about "getting it", just stating the obvious reality. Microsoft has nothing to offer consumers in the sense that's referred to on this site; ie phones and such but their core products are doing just fine so its hard to conclude how the "need" for a consumer focus is justified.
  • I agree,   but the crazed fanboys in here DON'T get it.  And when you tell them the obvious reality,  they get their panties in a knot.
  • Here's the thing. Microsoft themselves have stated a commitment to the dual user, or the application or use of thier products and services across a users work and life. And as I noted in a recent piece, they really do have the capacity to do so. As the numbers show here Office 365 was up for consumers, this product of course applys to the dual user, personal and professional. Particularly with the unified personal and professional authentication. Cortana, as I noted recently, and as Nadella noted on this earnings call, (unlike other assistants) has the capacity know to users across work and life. Surface hardware of course is inherently useful for both work and life. Windows also of course serves the dual user- professional/consumer. Even the coming Andromeda-initiated pocket PC, or all-in-one, mobile device category, will ultimately be suited for work and life. Now, looking at the companies dual user mission, and their obvious capacity and resources, they have the means to do it. Thier obvious problem, which none of us miss here has been execution in many cases.
  • @Jason Ward, well said
  • Yes, in the long term they DO.
  • And where exactly is that? You mean Smartphones I guess?
  • So Microsoft shows great numbers but whiners keep whining... I'm a happy user of Microsoft products. There's that.
  • Where's bleached he should be reading this article since he says their os and services aren't selling.
  • PCs are selling about the same as always. Haven't been able to penetrate any new markets though, like I said. Looks like the data mining and ads in Windows 10 are paying off and the XBox is doing well. Azure growth isn't exactly exciting although it will keep them healthy for quite a while. What will they do with that cash they make off it?
  • They will use it to build more cloud presence.
  • Build a video game streaming service and sell the service to PS and Nintendo.
  • While Window users continue to suffer.
  • My Alienwares and Surface Pro (xboxes runs Windowns...) work ok, where's the suffering?
  • How do you suffer?
  • The only time I suffered using a PC was when that PC was a macbook.   It was A POS.   I am loyal to windows for PC use.   Even old versions of Linux were ahead of OSX/MacOS in user friendliness. 
  • Cue Surface naysayers.
  • Sales are flat during the holiday period after recently releasing Surfacebook 2, Surface Laptop and the New Surface Pro. That certainly doesn't look good.
  • sales are flat year over year. quarterly growth is still up on Surface compared to the previous quarter which had the launch of laptop and new pro.
  • Most likely the market is saturated. What they need to do now is to keep their share.
  • Actually Windows PC sales were up for the first time in 6 years this past quarter.   SO,  there is growth in the sector.   
  • Would have been looking at $90B+ had they had a proper mobile platform.. So short sided Comments like "what's wrong with making profits" show the inability to think long term when the business Microsoft is in requires a long term vision. And $90B assumes a premium handset with slightly less aggressive margins than Apple...
  • Cloud growth isn't likely to continue doubling forever. For now though, it covers over a lot of underlying issues.
  • Soooo true.
  • $90B, really? That'd be a heck of a lot of phones...
  • How do you figure? Even Apple with their ridiculous margins doesn't even make 90 billion in a quarter.
  • It's funny. Nothing about your statement makes sense. You just throw in some ridicules numbers and every disappointed windows phone fanboy is upvoting you.
    Wake up and realize they failed a long time ago. It's ok. It's not what we or MS were hoping for but it's not the end of the world. Especially not for Microsoft. You act like every successful company needs a smartphone OS.
  • "Curiously, search advertising revenue led this category with a 15 percent increase in revenue."   Curiously? The Xbox is festered with ads. Windows 10 CAN show you ads as well (fortunately, unlike the Xads One, on Windows 10 you can turn that off). Microsoft has gone completely into the ad-business. So the last thing that surprises me is the ad revenue growing. I think we will continue to see growth there as more and more people have to jump to Windows 10 with the years.   The 8% of growth in Xads revenue is also easy to understand. The console didn't sell better. But because it's so overpriced (you can buy two One S's with the money you waste on the One X), any sale done made Microsoft the same profit as if they had sold two One S's without the costs of producing two units. Which is good for Microsoft's shareholders...but should worry Xads fanboys. 'cause Microsoft might feel tempted to overprice all their consoles from now on.   The lack of growth on Surface is, to me, a bit more surprising. With the amount of promotions done around Christmas, one would expect the newer Surface products to have been sold in larger numbers increasing the growth a bit more significantly. Why it didn't happen should give pause to the Surface team to re-evaluate what they're doing. Mayve streamline the line and cut back on pointless products (like the Surface Laptop) or re-evaluate the overpricing of the Surface Pro when you've removed the pen and still don't offer the type cover with it? I know Microsoft isn't supposedly trying to rival their OEM partners, but after the pointless Surface Laptop is became pretty clear that that excuse of "Surface is just a reference device" has long sailed.
  • Yeah right. The production cost of the One X is exactly like the production cost of the One S... The One X costs over $470 in production. You might not know this but MS isn't making the money with selling the console itself. They're making profit with selling the games and Xbox live gold subscription s.
  • Go do a internet search of all the Master race PC users, they still can't make an One X comparable PC for under 500 without leaving out licenses, Blu Ray drives, etc....
  • That's right. With the bloated pricing of GPU and DDR4, a comparable PC would cost over 700$ now.
  • Of you believe the LIE about the production costs of the One X, that's not my problem.
  • Yeah right the 'lie'. Get off your tinfoil hat. Those numbers are not coming from MS. But every single MS console was a loss for MS on release. Over the time the production gets cheaper but that's not the point. You don't understand how consoles work in 2018. It's not about the hardware, it's about the service. The hardware is just to bring people into your service. Without buying games the console is worthless for the customer. And MS (and Sony) are making profit with every single game sold on their platform. Just like Steam. It doesn't even matter who created the game. And most people want to play online with their friends. So they need Xbox live gold.
  • And you don't understand how production works, apparently. Nor how Microsoft is making money with the Xads One. The "service" you refer to, to Microsoft, is not paying off. Which is why they're overpricing the One X. They already saw that people aren't buying into the Xads ecosystem. So they can't make the money on those services. As a result, they need to increase the price of the hardware. Your little rant just works against you.   "And most people want to play online with their friends." Which is why the PlayStation rules supreme since most people use PlayStation anyway. Microsoft had the Xads positioned as an all-in-one media and gaming device. For gaming alone, people already have a better platform. So, Microsoft needs to milk the idiots who buy the One X.
  • The Surface Laptop is pointless? Having owned all 3 devices (Pro, Book and Laptop) over the last couple years it's the best of the 3 devices for what I use them for so far. Mainly in laptop mode with some touch screen use. The Book was good as well but the Laptop overall has been the best. Great performance, form factor and feel to use and also it's been the most stable of the of the 3. In the same time frame from purchase as the others it's the only one that hasn't had to be repaired under warranty either.
  • Yes. It is pointless. It serves no purpose, creates no new category and its not even the best at doing its job. Besides, Microsoft OEM partners were already putting out laptops that are vastly superior to the Surface Laptop.
    So it's really a pointless device if you look at it objectively.
  • MS still cant get its products outside of US fast enough. It cant expect to make big bucks out of hardware sale till it does that.
  • I don't think they even care to try. That's a cultural problem at Microsoft.
  • Yes exactly. That's MS's biggest flaw. And it's not just the hardware. It's the software too.
    In some cases it's even ridiculous. Cortana and bing is all i have to say. Both services are way worse in other countries or not even available. Even when countries speak the same languages without any real differences Cortana can't go over the borders.
  • I own a Surface laptop and its a joy to use. The best laptop i have owned/used in the last 14 years. But its surprising that Mac sales keeps increasing while Surface line has not grown at a healthy rate.
  • Not that surprising. You only have one option with the Mac. You buy that or you don't buy anything. With Windows you have an entire catalogue os devices to choose from, many even better than the Surface Laptop (and costing the same).
  • So surface book 2 didn't really help..
  • They are not losing money. Big diff compared to Surface RT days.
  • At the price it sells at, I'm sure Microsoft was aware from the start that it was going to be even more niche than Surface already is.
  • Looks like the MS Juggernaut is perfectly on target...... next is the new category they will create. Niche for sure but promising in the corporate environment. Prosumers will follow soon. You first create a "long wait" and then you release a compelling product and that will add to your bottom line (which is already robust). Consumerism and short term hypes will not change their long term strategy. Stick to the plan it surely pays-off.
  • And don't forget the gaming.
    They have a strong cloud business and just bought PlayFab. It's obvious where they're going for: Game streaming.
    Combine this with Xbox game pass and their good relationship with EA and we have a potential bright future for MS in gaming. And there are just three companies able to do something like this in a big way: Microsoft, Alphabet and Amazon. And MS is the only one currently into the gaming market.
  • If MS has been playing the long game and they come to the market with a new device cstagory then I would consider Nadella to be brilliant. However the way they are treat mixed reslity right now doesn't make me hopefully. I mean they put the platform out there, convinced partners to build them and now they act as if they don't exsist. 
  • 28 billion, but nah, we can't afford to keep W10M and Groove. Nah... We need more stuffing for the piggy bank...
  • For the not so finically interested from overseas: what is non-GAAP?
  • From investopedia webside: What are 'Generally Accepted Accounting Principles - GAAP' Generally accepted accounting principles (GAAP) are a common set of accounting principles, standards and procedures that companies must follow when they compile their financial statements. GAAP is a combination of authoritative standards (set by policy boards) and the commonly accepted ways of recording and reporting accounting information. GAAP improves the clarity of the communication of financial information.
    Some common examples of non-GAAP earnings measures are cash earnings,operting earning and earnings before interest, taxes, depreciation and amortization (EBITDA)