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pww.comMicrosoft Corporation, Q1 2025 Earnings Call, Oct 30, 2024 - NasdaqGS:MSFT

NasdaqGS:MSFT

Brett Iversen [Vice President of Investor Relations] 💬

Brett Iversen welcomed participants to the Microsoft Fiscal Year 2025 First Quarter Earnings Conference Call. He introduced the executives present: Satya Nadella, Chairman and CEO; Amy Hood, CFO; Alice Jolla, Chief Accounting Officer; and Keith Dolliver, Corporate Secretary and Deputy General Counsel. Brett highlighted that the earnings press release and financial summary slide deck are available on the Microsoft Investor Relations website, providing the reconciliation of differences between GAAP and non-GAAP financial measures. He noted that prior period amounts have been recast to reflect changes in segment composition announced in August 2024. Brett also mentioned that the call includes forward-looking statements and discussed the risks associated with these statements. Finally, he turned the call over to Satya Nadella.

Satya Nadella [Chairman & CEO] 💬

**- Microsoft Cloud revenue surpassed $38.9 billion, up 22%

  • AI business is on track to surpass an annual revenue run rate of $10 billion next quarter

  • Azure took share this quarter, with continued growth in cloud migration and over 39,000 Azure Arc customers

  • New cloud and AI infrastructure investments announced in Brazil, Italy, Mexico, and Sweden

  • Cobalt 100 VMs offer up to 50% better price performance

  • Partnership with OpenAI continues to deliver results, with Azure OpenAI usage more than doubling over the past 6 months

  • GE Aerospace used Azure OpenAI to build a digital assistant for 52,000 employees

  • GitHub Copilot enterprise customers increased 55% quarter-over-quarter

  • Microsoft 365 Copilot usage more than doubled quarter-over-quarter, with Vodafone and UBS rolling out large-scale deployments

  • Dynamics 365 continues to take share, with monthly active users of Copilot across CRM and ERP increasing over 60% quarter-over-quarter

  • DAX Copilot documents over 1.3 million physician-patient encounters monthly

  • Microsoft Teams usage remains at all-time highs

  • Security Copilot is being used by companies in every industry

  • LinkedIn member growth continues to accelerate, with weekly immersive video views increasing 6x quarter-over-quarter

  • Bing ex TAC revenue growth outpaced the search market

  • Gaming revenue increased 43% with the launch of Black Ops 6 setting a record for day 1 players

  • Focus on strategically investing in long-term opportunities, with AI business expected to surpass $10 billion in annual revenue run rate in Q2**

Amy E. Hood [Executive VP & CFO] 💬

**- Revenue and Earnings: Revenue was $65.6 billion, up 16%, and earnings per share was $3.30, an increase of 10%.

  • Commercial Bookings: Commercial bookings increased 30% and 23% in constant currency, driven by strong execution and growth in long-term commitments.
  • Commercial Remaining Performance Obligation: Increased 22% and 21% in constant currency to $259 billion, with 40% to be recognized in the next 12 months.
  • Activision Impact: Contributed a net impact of approximately 3 points to revenue growth, with a 2 point drag on operating income growth and a negative $0.05 impact to earnings per share.
  • Microsoft Cloud: Revenue was $38.9 billion, growing 22%, with gross margin percentage decreasing 2 points year-over-year.
  • Operating Expenses: Increased 12%, lower than expected due to cost efficiencies and prioritization work.
  • Segment Results:
    • Productivity and Business Processes: Revenue was $28.3 billion, growing 12% and 13% in constant currency, driven by M365 and LinkedIn.
    • Intelligent Cloud: Revenue was $24.1 billion, increasing 20% and 21% in constant currency, with Azure and other cloud services growing 33% and 34%.
    • More Personal Computing: Revenue was $13.2 billion, increasing 17%, driven by Gaming and Search.
  • Capital Expenditures: Were $20 billion, in line with expectations, with cash paid for PP&E at $14.9 billion.
  • Cash Flow: Cash flow from operations was $34.2 billion, up 12%, and free cash flow was $19.3 billion, down 7% year-over-year.
  • Q2 Outlook:

    • Revenue: Expected to grow between 10% and 11% in constant currency.

    • COGS: Expected to grow between 11% and 13% in constant currency.

    • Operating Expense: Expected to grow approximately 7% in constant currency.

    • Other Income and Expense: Expected to be roughly negative $1.5 billion.

    • Effective Tax Rate: Expected to be approximately 19%.**

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