Microsoft's FY25Q1 covers July through September 2024.
Microsoft FY2025 Q1 Earnings Summary:
This quarter Microsoft changed internal revenue scopes for its three major segments for the first time in years; the biggest impact was narrowing the Azure scope: moved the per-seat enterprise billing portion of Azure to Productivity, leaving only consumption-based Azure business in Intelligent Cloud.
Revenue $65.585B, up 16% year over year, another record high; operating income $30.552B, up 14% year over year, 7th consecutive quarterly record; net income $24.667B, up 11% year over year, another record high.
Productivity revenue $28.317B, up 12% year over year; operating income $16.516B, up 16% year over year.
Microsoft 365 revenue ~$22.2B, up 12% year over year; M365 E5 demand strong, coupled with rising Copilot penetration, ARPU continues to rise; M365 commercial cloud revenue ~90% of M365 commercial, M365 consumer cloud ~85% of M365 consumer; launched next-gen M365 Copilot, M365 DAU doubled sequentially; nearly 70% of Fortune 500 now using M365 Copilot (60% last quarter); custom Copilot Studio now used by 100K+ companies, doubled sequentially; Teams usage hits new high; nearly 70% of enterprise customers subscribe to Premium/Phone/Room.
LinkedIn revenue $4.3B, up 8% year over year; LinkedIn user count growing, double-digit growth in India and Brazil, engagement at new high.
Dynamics revenue $1.8B, up 14% year over year; Dynamics 365 share continues to rise, CRM/ERP Copilot MAU up 60%+ sequentially; Dynamics 365 now ~90% of Dynamics revenue.
Intelligent Cloud revenue $24.092B, up 20% year over year, another record high; operating income $10.5B, up 18% year over year, another record high.
Azure revenue ~$16.9B, up 33% year over year; AI contributed 12 percentage points of growth ($1.5B); non-AI contribution to Azure revenue declined 1 percentage point sequentially; this quarter and next remain AI supply-constrained; consumption growth flat; expect FY25 H2 (H1 calendar 2025) Azure to accelerate as AI capacity ramps; Azure market share continues to rise; cloud migration accelerating; Azure Arc now 39K customers (36K last quarter); Microsoft has datacenters in 60+ countries/regions; Azure will be first cloud provider to launch GB200; Azure OpenAI usage doubled year over year in past six months; Azure AI business is primarily inference-driven.
Fabric paid customers 16K+ (14K last quarter), covering 70%+ of Fortune 500; GitHub Copilot enterprise customers up 55% sequentially; security business named leader in 20 categories, more than any other company, share rising in most categories.
PC revenue $13.176B, up 19% year over year; operating income $3.5B, down 4% year over year.
Windows & Devices revenue $4.3B, down 0.3% year over year.
Gaming revenue $5.6B, up 43% year over year; Xbox hardware revenue down 29% year over year, software revenue up 61% year over year; gaming MAU at new high; Activision Blizzard contributed $1.69B revenue, $730M gross profit, $440M operating loss; Game Pass revenue and ARPS at period highs; Call of Duty Black Ops 6 launch day players record; PS/Steam sales up 60%+ year over year.
Search advertising revenue $3.2B, up 18% year over year; Edge and Bing share continue to rise; Bing growth outpacing search market growth.
Azure ($10M+/$100M+) and Microsoft 365 ($10M+) large deal volume growth driving commitment growth; commercial RPO $259B, up 22% year over year, annuity mix 98%.
Expect FY25Q2 revenue up 11% year over year, operating income up 14% year over year; Azure up 31%-32% year over year, AI contributing 12%; expect FY25 H2 Azure to accelerate as AI capacity ramps; Microsoft 365 up 14% year over year, LinkedIn up 10%, Dynamics 365 up mid-to-high teens%, Windows OEM & Devices down low-to-mid single digits, search advertising up high teens%, gaming revenue down high single digits, 40% from Activision Blizzard.
Expect next quarter overall AI-related revenue run rate to break $10B; AI to become fastest-growing business in Microsoft history.
Expect roughly half of cloud and AI capex supports long-lived assets monetized over 15+ years; remainder primarily servers procured just-in-time based on customer demand.
This quarter recognized $283M loss, primarily from OpenAI; next quarter will recognize $1.5B loss.
Overall, this earnings release again highlights Microsoft's earnings stability; although Azure growth guidance slightly below market expectations, the primary driver remains AI compute supply constraints. Meanwhile, Microsoft's SaaS products are progressing well on full Copilot integration, steadily lifting ARPU, enabling next quarter's AI revenue run rate to hit $10B; Microsoft's dual AI towers—Azure AI + Copilot—still offer significant upside.
The market remains concerned about tech giants' intense AI spending, even though Microsoft, Google, Amazon, and Meta this quarter again proved massive AI investment doesn't materially hurt profits—in fact Microsoft and Amazon repeatedly emphasized "AI compute supply constraints" limited growth. Yet voices persist: AI monetization too slow, too much spend for too little return. Remember early cloud era was filled with the same noise. As cloud pioneer, Amazon this quarter noted AWS AI is growing 3x faster than cloud at the same stage. Perhaps we are experiencing an AI growth cycle that surpasses cloud computing.