Microsoft Cloud powers third quarter results

REDMOND, Wash. — April 26, 2018 — Microsoft Corp. today announced the following results for the quarter ended March 31, 2018, as compared to the corresponding period of last fiscal year:

  • Revenue was $26.8 billion and increased 16%
  • Operating income was $8.3 billion and increased 23%
  • Net income was $7.4 billion and increased 35%
  • Diluted earnings per share was $0.95 and increased 36%

“Our results this quarter reflect the trust people and organizations are placing in the Microsoft Cloud,” said Satya Nadella, chief executive officer of Microsoft. “We are innovating across key growth categories of infrastructure, AI, productivity, and business applications to deliver differentiated value to customers.”

Microsoft returned $6.3 billion to shareholders in the form of dividends and share repurchases in the third quarter of fiscal year 2018, an increase of 37%.

“With consistent investment and strong sales execution, this quarter we achieved better than expected performance across all segments,” said Amy Hood, executive vice president and chief financial officer at Microsoft. “We delivered double-digit revenue and operating income growth driven by 58% growth in our commercial cloud revenue.”

Revenue in Productivity and Business Processes was $9.0 billion and increased 17% (up 14% in constant currency), with the following business highlights:

  • Office commercial products and cloud services revenue increased 14% (up 12% in constant currency) driven by Office 365 commercial revenue growth of 42% (up 40% in constant currency)
  • Office consumer products and cloud services revenue increased 12% (up 9% in constant currency) and Office 365 consumer subscribers increased to 30.6 million
  • LinkedIn revenue increased 37% (up 33% in constant currency) with continued acceleration in engagement highlighted by LinkedIn sessions growth of over 30%
  • Dynamics products and cloud services revenue increased 17% (up 14% in constant currency) driven by Dynamics 365 revenue growth of 65% (up 62% in constant currency)

Revenue in Intelligent Cloud was $7.9 billion and increased 17% (up 15% in constant currency), with the following business highlights:

  • Server products and cloud services revenue increased 20% (up 17% in constant currency) driven by Azure revenue growth of 93% (up 89% in constant currency)
  • Enterprise Services revenue increased 8% (5% in constant currency)

Revenue in More Personal Computing was $9.9 billion and increased 13% (up 11% in constant currency), with the following business highlights:

  • Windows OEM revenue increased 4% (up 4% in constant currency) driven by OEM Pro revenue growth of 11%
  • Windows commercial products and cloud services revenue increased 21% (up 17% in constant currency) driven by an increased volume of multi-year agreements and the mix of products that carry higher in-quarter revenue recognition
  • Gaming revenue increased 18% (up 16% in constant currency) driven by Xbox software and services revenue growth of 24% (up 21% in constant currency) mainly from third party title strength
  • Surface revenue increased 32% (up 27% in constant currency) against a prior year comparable impacted by product end-of-life-cycle dynamics
  • Search advertising revenue excluding traffic acquisition costs increased 16% (up 14% in constant currency) driven by higher revenue per search and search volume

Business Outlook

Microsoft will provide forward-looking guidance in connection with this quarterly earnings announcement on its earnings conference call and webcast.

Webcast Details

Satya Nadella, chief executive officer, Amy Hood, executive vice president and chief financial officer, Frank Brod, chief accounting officer, Carolyn Frantz, deputy general counsel and corporate secretary, and Michael Spencer, general manager of investor relations, will host a conference call and webcast at 2:30 p.m. Pacific time (5:30 p.m. Eastern time) today to discuss details of the company’s performance for the quarter and certain forward-looking information. The session may be accessed at http://www.microsoft.com/en-us/investor. The webcast will be available for replay through the close of business on April 26, 2019.

New Accounting Standards

We adopted new accounting standards related to revenue recognition and leases effective July 1, 2017. The prior periods presented here have been restated to reflect adoption of these new standards.

Constant Currency

Microsoft presents constant currency information to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency rate fluctuations. To present this information, current and comparative prior period results for entities reporting in currencies other than United States dollars are converted into United States dollars using the average exchange rates from the comparative period rather than the actual exchange rates in effect during the respective periods. All growth comparisons relate to the corresponding period in the last fiscal year. Microsoft has provided this non-GAAP financial information to aid investors in better understanding our performance. The non-GAAP financial measures presented in this release should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with generally accepted accounting principles (GAAP).

 Financial Performance Constant Currency Reconciliation

Three Months Ended March 31,
 ($ in millions, except per share amounts) Revenue Operating Income Net Income Diluted Earnings per Share
2017 As Reported $23,212 $6,723 $5,486 $0.70
2018 As Reported $26,819 $8,292 $7,424 $0.95
Percentage Change Y/Y 16% 23% 35% 36%
Constant Currency Impact $506 $216 $254 $0.03
Percentage Change Y/Y Constant Currency 13% 20% 31% 31%

Segment Revenue Constant Currency Reconciliation

Three Months Ended March 31,
 ($ in millions) Productivity and Business Processes Intelligent Cloud More Personal Computing
2017 As Reported $7,707 $6,730 $8,775
2018 As Reported $9,006 $7,896 $9,917
Percentage Change Y/Y 17% 17% 13%
Constant Currency Impact $193 $162 $151
Percentage Change Y/Y Constant Currency 14% 15% 11%

Selected Product and Service Revenue Constant Currency Reconciliation           

Three Months Ended March 31, 2018
Percentage Change Y/Y (GAAP) Constant Currency Impact Percentage Change Y/Y Constant Currency
Office commercial products and cloud services 14% (2)% 12%
Office 365 commercial 42% (2)% 40%
Office consumer products and cloud services 12% (3)% 9%
LinkedIn 37% (4)% 33%
Dynamics products and cloud services 17% (3)% 14%
Dynamics 365 65% (3)% 62%
Server products and cloud services 20% (3)% 17%
Azure 93% (4)% 89%
Enterprise Services 8% (3)% 5%
Windows OEM 4% 0% 4%
Windows commercial products and cloud services 21% (4)% 17%
Search advertising excluding traffic acquisition costs 16% (2)% 14%
Surface 32% (5)% 27%
Gaming 18% (2)% 16%
Xbox software and services 24% (3)% 21%

 About Microsoft

Microsoft (Nasdaq “MSFT” @microsoft) enables digital transformation for the era of an intelligent cloud and an intelligent edge. Its mission is to empower every person and every organization on the planet to achieve more.

Forward-Looking Statements

Statements in this release that are “forward-looking statements” are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially because of factors such as:

  • intense competition in all of our markets that may lead to lower revenue or operating margins;
  • increasing focus on services presenting execution and competitive risks;
  • significant investments in new products and services that may not achieve expected returns;
  • acquisitions, joint ventures, and strategic alliances that may have an adverse effect on our business;
  • impairment of goodwill or amortizable intangible assets causing a significant charge to earnings;
  • a change in our ability to earn expected revenues from our intellectual property rights;
  • claims that Microsoft has infringed the intellectual property rights of others;
  • the possibility that we may fail to protect our source code;
  • the possibility that we may not be able to protect information on our products and services from use by others;
  • cyberattacks and security vulnerabilities that could lead to reduced revenue, increased costs, liability claims, or harm to our reputation or competitive position;
  • disclosure and misuse of personal data that could cause liability and harm to our reputation;
  • abuse of our advertising or social platforms that may harm our reputation or user engagement;
  • excessive outages, data losses, and disruptions of our online services if we fail to maintain an adequate operations infrastructure;
  • government litigation and regulatory activity relating to competition rules that may limit how we design and market our products;
  • potential liability under trade protection, anti-corruption, and other laws resulting from our global operations;
  • laws and regulations relating to the handling of personal data that may impede the adoption of our services or result in increased costs, legal claims, or fines against us;
  • the dependence of our business on our ability to attract and retain talented employees;
  • claims against us that may result in adverse outcomes in legal disputes;
  • additional tax liabilities;
  • quality or supply problems;
  • exposure to increased economic and operational uncertainties from operating a global business, including the effects of foreign currency exchange;
  • catastrophic events or geo-political conditions that may disrupt our business;
  • adverse economic or market conditions that may harm our business; and
  • changes in our sales organization that may impact revenues.

For more information about risks and uncertainties associated with Microsoft’s business, please refer to the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” sections of Microsoft’s SEC filings, including, but not limited to, its annual report on Form 10-K and quarterly reports on Form 10-Q, copies of which may be obtained by contacting Microsoft’s Investor Relations department at (800) 285-7772 or at Microsoft’s Investor Relations website at http://www.microsoft.com/en-us/investor.

All information in this release is as of April 26, 2018. The company undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in the company’s expectations.

For more information, press only:

Microsoft Media Relations, WE Communications for Microsoft, (425) 638-7777, rrt@we-worldwide.com

For more information, financial analysts and investors only:

Michael Spencer, general manager, Investor Relations, (425) 706-4400

Note to editors: For more information, news and perspectives from Microsoft, please visit the Microsoft News Center at http://www.microsoft.com/news. Web links, telephone numbers, and titles were correct at time of publication, but may since have changed. Shareholder and financial information, as well as today’s 2:30 p.m. Pacific time conference call with investors and analysts, is available at http://www.microsoft.com/en-us/investor.

Related Posts