Microsoft’s impressive performance in 3Q24 was fueled by the strength of its cloud offerings and the transformative power of Microsoft Copilot and Copilot stack, which are driving a new era of AI transformation across industries. The company’s ability to drive innovation and deliver quantifiable value to its customers promises continued success in the rapidly evolving technology landscape.

Key Takeaways

• Microsoft Cloud revenue reached $35.1 billion, growing 23% year-over-year. Azure and other cloud services revenue grew 31%, showing that AI is not the only driver while underlining the long-term opportunity to convert these Cloud relationships to include Copilot.
• From a revenue perspective, we must consider that Microsoft has only started to see revenue coming from Copilot deployments. This means we will see this segment continue growing as their infrastructure investment to support such growth accelerates.
• While Google Cloud takes pride in its penetration in startups and AI unicorns, Microsoft is showing off its wins in large multinationals. For example, Coca-Cola recently signed a five-year, $1.1 billion agreement to use the software giant’s Azure cloud services and AI technology.

What’s Significant

The strong growth in Azure and other cloud services revenue highlights Microsoft’s leadership position in the cloud computing market and its ability to provide scalable, secure, and innovative solutions. With its presence in large enterprises growing with Cloud and AI, Microsoft is driving engagement at the ITDMs and user levels. Over half of Azure AI customers using Microsoft’s data and analytics tools are promising even more growth opportunities for Copilot services.

Microsoft’s continued growth in its research and development investments in cloud and AI shows confidence in the future and determination to stay ahead of the competition as the preferred AI provider.

Devices revenue decreased this quarter by 17% (16% in constant currency). Microsoft is now expecting Q4 devices revenue to decline again “in the mid-teens,” according to Microsoft CFO Amy Hood. Windows OEM revenue growth should be in the “low to mid-single digits” in Q4, as the PC market volumes are expected to continue at pre-pandemic levels. When it comes to the PC market, however, the AI PC moment will matter much more to Microsoft than the Surface business in itself as the company continues to prioritize Copilot everywhere.

Microsoft’s gaming revenue increased significantly by 51% this quarter, largely due to the inclusion of Activision Blizzard’s revenue in the company’s financial results. The newly acquired gaming giant contributed a substantial 55 points of net impact to Microsoft’s gaming revenue. Without the addition of Activision Blizzard, Microsoft’s gaming revenue would have declined compared to the previous quarter.

Financial Performance:

• Revenue: $61.9 billion, up 17% year-over-year, demonstrating strong overall growth across all business segments
• Operating income: $27.6 billion, up 23% year-over-year, indicating improved operational efficiency and cost management
• Net income: $21.9 billion, up 20% year-over-year, showcasing the company’s ability to generate profits and maintain healthy margins
• Diluted earnings per share: $2.94, up 20% year-over-year, providing increased value to shareholders and reflecting the company’s strong financial position

Business Highlights:

• Office Commercial products and cloud services revenue increased 13% (12% in constant currency), driven by Office 365 Commercial revenue growth of 15%, as more businesses adopt cloud-based productivity solutions
• Office Consumer products and cloud services revenue increased 4%, and Microsoft 365 Consumer subscribers grew to 80.8 million, highlighting the value proposition of the company’s consumer offerings. It will be interesting to see if the recently launched Copilot offering will capture consumers’ attention in a market that already sees a variety of apps and services aimed at consumers or individual buyers vs. enterprises.
• LinkedIn revenue increased 10% (9% in constant currency), demonstrating the platform’s ability to connect professionals and drive engagement while reflecting a soft job market.
• Windows revenue increased 11%, with OEM revenue growth of 11% and Commercial products and cloud services revenue growth of 13% (12% in constant currency), as OEMs prepare to navigate enterprises through the new era of AI PCs, balancing short-term upgrades with long-term sales opportunities and increased engagement.

Shareholder Returns:

Microsoft returned $8.4 billion to shareholders through share repurchases and dividends in Q3 FY2024, underscoring the company’s commitment to delivering value to its investors and its confidence in its long-term growth prospects.

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