Microsoft revenue up by a fifth as world shuffles through the pandemic into the metaverse

Cloud the top earner as usual but Redmond is doubling down on gaming

The blockbuster quarters just keep on rolling for Microsoft after its latest set of financials surpassed analysts' forecasts, thanks to a thriving cloud and PC market in the pandemic-driven new digital age.

For Q2 ended 31 December of Microsoft's fiscal 2022, total revenue jumped 20 per cent year-on-year to $51.7bn, higher than both Refinitive's prediction of $50.9bn and FactSet's analyst poll of $50.7bn.

Operating profit jumped 24 per cent to $22.2bn, and the bottom line was $18.8bn, up 21 per cent. Factset forecasted $17.5bn.

The biggest year-on-year growth for Microsoft was in its cloud computing segment. "Azure and other cloud services" grew revenue 46 per cent, which, according to CFO Amy Hood, was largely responsible for boosting overall cloud revenue to $22.1bn, up 32 per cent. While these numbers on their own are quite significant, the pace of Azure's expanding sales decelerated from the 50 per cent rises regularly posted in prior quarters.

The Intelligent Cloud division itself grew 6 per cent to $18.3bn.

The Productivity and Business Process unit was up 19 per cent to $15.9bn, with Office Commercial and Office Consumer up 14 and 15 per cent respectively. Dynamics bounced 29 per cent year-on-year and turnover generated by LinkedIn was up 37 per cent.

More Personal Computing (MPC) grew 15 per cent to $17.5bn. Within this, Windows OEM was up 25 per cent, Windows Commercial was up 13 per cent, Xbox grew 10 per cent, while search and news advertising climbed 32 per cent.

The product area that piled on the least amount of new dollars in MPC was Microsoft Surface at a mere 8 per cent. However, the results signal that things were not as bad as previously feared, when Microsoft forecast a single-digit decline due to supply chain woes.

PC sales have, like the cloud, benefited from the work-from-home revolution caused by COVID-19 lockdowns, and last year total PC shipments climbed to a high not seen since the end of 2012.

CEO Satya Nadella said Game Pass subscribers surpassed 25 million across PC and console, hitting a new record. Gaming revenue saw an 8 per cent growth year-on-year with Xbox consoles up 4 per cent, and gaming content and services up 10 per cent.

Referring to gaming, Nadella said:

That's where we have doubled down in terms of our consumer category creation and we see the intensity of usage and the business model diversity around games that increasingly the economics of gaming franchises is also radically becoming much more software like.

Microsoft announced earlier this month that it planned to purchase video game company Activision Blizzard for US$68.7bn.

On the investors call, Nadella positioned gaming as a precursor to the metaverse: Microsoft is currently investing in the tech that will eventually support it.

"With our planned acquisition of Activision Blizzard announced last week, we're investing to make it easier for people to play great games wherever, whenever and however they want. And also shape what comes next for gaming as platforms like the metaverse develop," said Nadella.

The CEO described the next wave of the internet as a place "where people can build their own metaverse worlds, whether they're organizations or game developers or anyone else."

Of course this boom for digitalization and subsequently Microsoft's bottom line is largely pandemic-induced. Nadella called digital tech the "only resource" that can help productivity while keeping costs down as the world comes out of the pandemic.

"We're living through a generational shift in our economy and society. Digital technology is the most malleable resource at the world's disposal to overcome constraints and reimagine everyday work and life," said Nadella. ®

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