Microsoft Q2 2024: Gaming takes over Windows

Microsoft Q2 2024: Gaming takes over Windows

Microsoft just posted its second quarter 2024 financial results. The software maker generated revenue of $62 billion and net income of $21.9 billion during the second quarter. Revenues rose 18 percent, and net income rose 33 percent.

This is the first quarter that Microsoft has reported earnings as a $3 trillion company and also the first time that the company has reported additional revenue from its acquisition of Activision Blizzard. This additional revenue from games made Microsoft’s third-largest business in the quarter, after Windows.

Office and cloud revenues remain the highest, contributing about 60 percent of Microsoft’s total revenue. While Windows OEM revenue is rebounding, hardware revenue from Surface sales continued to decline during the quarter.

Surface laptop studio 2.
Photography by Amelia Holowaty Kralis/The Verge

Microsoft warned that hardware revenues would decline compared to this quarter, and fell by 9 percent. Microsoft CEO Satya Nadella said last quarter that “PC market unit volumes were at roughly pre-pandemic levels,” so it’s possible that Surface simply hasn’t recovered as well. This is despite Microsoft launching the new Surface Laptop Studio 2, Surface Laptop Go 3, and even Surface Go 4 late last year. Microsoft’s hardware revenue also includes HoloLens and PC accessories, and revenue has been declining for more than 12 months now.

But Windows performs better. OEM revenue, the price computer makers pay to Microsoft to put Windows on laptops and PCs, rose 11 percent during the quarter. Windows OEM revenue suffered throughout Microsoft’s entire 2023 fiscal year, but this now represents two straight quarters of growth compared to five straight quarters of decline in hardware revenue.

Xbox Series S/X consoles.
Photography by Tom Warren/The Verge

Speaking of hardware, all eyes are on Microsoft Gaming for the company’s latest earnings. Microsoft is now reporting Activision Blizzard’s revenue as part of its gaming unit, boosting overall revenue in Xbox content.

Xbox content and services revenue, which includes Xbox Game Pass, rose a whopping 61 percent. This is largely due to Activision Blizzard’s revenue, so it’s hard to immediately understand how Xbox would have fared without this giant addition.

Microsoft says the net impact from the Activision Blizzard acquisition is just over $2 billion in revenue, but the cost of integration, transaction costs and other revenue costs totals $930 million. Combined with other operating expenses ($1.59 billion), it results in an operating loss of $440 million.

We’ll need more guidance from Microsoft on what Activision Blizzard’s earnings will look like next quarter, especially as Microsoft continues to integrate the company into its broader Microsoft Gaming division. While the Activision Blizzard acquisition was being completed, Microsoft laid off 1,900 workers in its gaming division earlier this month, mainly affecting Activision Blizzard employees. Microsoft has also overhauled its Xbox management in recent months and even appointed a new Blizzard president earlier this week.

Xbox was also up 3 percent, after the all-important holiday quarter. Microsoft ran a number of promotions for the Xbox Series Microsoft’s overall gaming revenue rose 49 percent, mainly helped by Activision Blizzard’s revenue.

It’s an important quarter for gaming at Microsoft as it is now the company’s third-largest business. Gaming contributed $7.11 billion to revenue for the quarter, more than $5.26 billion from Windows, but behind $13.47 billion from office and cloud services and the giant’s $23.95 billion from server and cloud products.

Once again, there are no new numbers for Xbox Game Pass subscribers. Microsoft said Xbox Game Pass increased to 25 million subscribers in January 2022, but we haven’t had an update for two years yet. Nadella revealed this in his last quarter earnings Starfield Help grow Xbox Game Pass. “At launch, we set a record for the most Game Pass subscriptions added in a single day ever,” he said.

Microsoft Office sales remain strong in the cloud.
Image: Microsoft

The Microsoft Office division performed well again, with total productivity and business operations revenues up 13 percent year-over-year. This was mainly driven by Office 365, where business seat growth was up 9 percent.

Microsoft 365 Consumer subscribers are now 78.4 million, nearly 16 percent compared to last year. Microsoft launched a $1.99 per month subscription to Microsoft 365 Basic last year, which continues to increase overall subscriber numbers.

Commercial office products and cloud services revenues also grew 15 percent year-over-year thanks to Office 365 Commercial revenue growth of 17 percent. This means Microsoft ended the quarter with more than 400 million paid commercial seats for Office 365, a clear sign that the company continues to shift businesses to cloud-powered versions of Office.

Microsoft has also sold Copilot for Microsoft 365 in recent months, but the company has not detailed how the sale of AI add-ons impacts its revenue. “We have moved from talking about AI to implementing AI at scale,” Microsoft CEO Satya Nadella says in the company’s earnings release. “By infusing AI into every layer of our technology, we are winning new customers and helping realize new benefits and productivity gains in every sector.”

The biggest impact of Microsoft’s AI ambitions will come from its server-side investments with Azure OpenAI. “Azure and other cloud services are up 30 percent year-over-year…and those growth rates include a six-point contribution from our AI services,” James Ambrose, Microsoft’s director of investor relations, says on a call with Azure and other cloud services. . the edge.

Microsoft’s overall intelligent cloud business generated revenue of $25.9 billion in the quarter, an increase of 20 percent year over year. Most of this revenue was driven by Azure.

Microsoft will now hold an earnings call at 5:30 PM ET/3:30 PM PT. We will update this article with Microsoft’s guidance for the upcoming quarter and any comments on the quarter.

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