Microsoft (MSFT, Financial) is trading modestly lower after its Q4 (June) results. The software giant broke its streak of five consecutive double-digit EPS beats with a modest EPS beat this time. Revenue increased by 15.2% year-over-year to $64.73 billion, slightly above analyst expectations. However, Q1 (September) revenue guidance was somewhat below expectations.
- Azure Performance: Azure grew by 30% in constant currency (CC), at the low end of prior guidance of 30-31% CC due to some softness in a few European regions on non-AI consumption. This follows Q3's growth of 31% CC, which exceeded prior guidance of 28% CC. Q1 (September) guidance is set at 28-29% CC.
- AI and Commercial Growth: Microsoft now has over 60,000 Azure AI customers, up nearly 60% year-over-year, with average spend per customer continuing to grow. Commercial bookings were significantly ahead of expectations at 19% CC. The quarter saw record commitments driven by growth in $10+ million and $100+ million contracts for both Azure and Microsoft 365. Commercial RPO increased by 20% and 21% CC to $269 billion.
- Consumer Segment: The PC market performed as expected, with Windows OEM revenue increasing by 4% year-over-year. LinkedIn saw accelerated member growth and record engagement, with LinkedIn Premium sign-ups increasing by 51% year-over-year. Search, Advertising, and News revenues excluding TAC rose by 19%, with Microsoft gaining share across Bing and Edge. The company now has over 500 million monthly gaming active users across platforms and devices.
- Segment Revenue: Productivity and Business Processes revenue was $20.3 billion, up 12% CC, slightly ahead of expectations. Intelligent Cloud segment revenue was $28.5 billion, up 20% CC, in line with expectations. More Personal Computing revenue was $15.9 billion, up 15% CC, exceeding expectations due to strong performance in Windows Commercial and Search.
- FY25 Outlook: Microsoft expects double-digit revenue and operating income growth for FY25. The company plans to increase capital expenditure in FY25 relative to FY24 to meet the growing demand for its AI and cloud products. This includes scaling infrastructure investments, such as building or leasing data centers and purchasing servers, which could impact margins in FY25.
Overall, while this quarter was not as impressive as Q3, it was still solid with all segments showing upside or meeting expectations. Concerns about Azure are more related to capacity constraints rather than a lack of demand, particularly for AI. These constraints are expected to continue into the first half of FY25, but Azure should benefit in the second half of FY25 as increased capital expenditure comes online. The recent stock pullback suggests that an imperfect quarter may have already been priced in.
