BuilidingSource: Microsoft

What you need to know

  • Microsoft's total revenue last quarter was a massive $43.1 billion.
  • Surface FY21 Q2 earnings surpassed two billion dollars for the first time.
  • Xbox earnings were up 51 percent due to robust demand for gaming.

Microsoft reported its FY21 Q2 earnings today, bringing in a massive $43.1 billion up 17 percent year over year from $36.9 billion.

The earnings reveal how well-positioned Microsoft is for what CEO Satya Nadella calls "the dawn of a second wave of digital transformation sweeping every company and every industry."

Overall highlights for the quarter include:

  • Operating income was $17.9 billion and increased 29%
  • Net income was $15.5 billion and increased 33%
  • Diluted earnings per share was $2.03 and increased 34%

Commerical and cloud reign king

As expected, commercial cloud revenue reached a massive $16.7 billion, up 34 percent year over year:

  • Server products and cloud services revenue increased 26% (up 24% in constant currency) driven by Azure revenue growth of 50% (up 48% in constant currency)

Intelligent Cloud Fy21 QSource: Microsoft

Other revenues from Productivity and Business Processes include:

  • Office Commercial products and cloud services revenue increased 11% (up 9% in constant currency) driven by Office 365 Commercial revenue growth of 21% (up 20% in constant currency)
  • Office Consumer products and cloud services revenue increased 7% (up 6% in constant currency), and Microsoft 365 Consumer subscribers increased to 47.5 million
  • LinkedIn revenue increased 23% (up 22% in constant currency)
  • Dynamics products and cloud services revenue increased 21% (up 18% in constant currency) driven by Dynamics 365 revenue growth of 39% (up 37% in constant currency

Surface and Windows going strong

Revenue in More Personal Computing was $15.1 billion and increased 14% (up 13% in constant currency), with the following business highlights:

  • Windows OEM revenue increased 1%
  • Windows Commercial products and cloud services revenue increased 10% (up 8% in constant currency)
  • Xbox content and services revenue increased 40% (up 38% in constant currency)
  • Surface revenue increased 3% (up 1%in constant currency)
  • Search advertising revenue excluding traffic acquisition costs increased 2% (up 1% in constant currency)

Microsoft's Surface devices for the first time broke $2 billion in rev, a modest increase year over year of three percent.

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Surface Fy21 QSource: Microsoft

Microsoft does not break out the Surface numbers individually, so it is unclear which device is selling the best. Microsoft launched Surface Pro X (SQ2) and Surface Duo this year along with its existing lineups of Surface Laptop Go, Surface Pro 7, Surface Book 3, Surface Go 2, and Surface Laptop 3.

Windows OEM growth was also up slightly by 1 percent, due to a mix of declining OEM Pro revenue (down 9 percent) and a significant uptick in OEM non-Pro licenses (up 24 percent).

Xbox looms large

Xbox also did exceptionally well with a massive 51 percent jump in revenue.

Microsoft attributes its gaming successes to various factors, but spotlighting the recent launch of its new Xbox Series X and Xbox Series S consoles. It contributed to hardware revenue near-doubling with an 86 percent surge, as it scrambles to meet demand with its latest generation consoles. The two new devices launched back in November, with tight availability expected to continue over the coming months.

Microsoft FY21 Q2 XboxSource: Microsoft

Content and services saw an uptick this quarter, including Xbox software and subscriptions, rising 40 percent year-over-year. Microsoft pins this on "strength" from third-party and first-party titles, as well as its Xbox Game Pass memberships. It contrasts the downward slump witnessed this time last year, where overall gaming revenue fell 21% at the tail end of the Xbox One generation.

Microsoft CEO Satya Nadella commented on today's earnings:

What we have witnessed over the past year is the dawn of a second wave of digital transformation sweeping every company and every industry," said Satya Nadella, chief executive officer of Microsoft. "Building their own digital capability is the new currency driving every organization's resilience and growth. Microsoft is powering this shift with the world's largest and most comprehensive cloud platform.

More details about Microsoft's quarterly performance are due later this afternoon during the earnings call.

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