Q1 2025 Microsoft Corp Earnings Call Transcript
Key Points
- Microsoft Cloud revenue surpassed $38.9 billion, marking a 22% increase, driven by strong demand for AI and cloud services.
- AI business is on track to surpass an annual revenue run rate of $10 billion next quarter, making it the fastest-growing business in Microsoft's history.
- Azure and other cloud services revenue grew 33% in constant currency, with healthy consumption trends.
- Microsoft 365 Copilot adoption is accelerating, with nearly 70% of the Fortune 500 using it, and customers continue to adopt it at a faster rate than any other new Microsoft 365 suite.
- LinkedIn revenue increased 10%, with record engagement and growth across all lines of business.
- Microsoft Cloud gross margin percentage decreased by 2 points year over year, driven by scaling AI infrastructure.
- Operating expenses increased by 12%, partly due to the Activision acquisition, impacting overall profitability.
- Free cash flow decreased by 7% year over year, reflecting higher capital expenditures to support cloud and AI offerings.
- Supply constraints, particularly in AI infrastructure, are impacting Azure's ability to meet demand, leading to potential growth deceleration.
- The Activision acquisition had a negative $0.05 impact on earnings per share due to purchase accounting adjustments and related costs.
Greetings, and welcome to the Microsoft fiscal year 2025 first-quarter earnings conference call. (Operator Instructions)
Brett Iversen, Vice President of Investor Relations. Please go ahead.
Good afternoon and thank you for joining us today. On the call with me are Satya Nadella, Chairman and Chief Executive Officer; Amy Hood, Chief Financial Officer; Alice Jolla, Chief Accounting Officer; and Keith Dolliver, Corporate Secretary and Deputy General Counsel.
You can find our earnings press release and financial summary slide deck, which is intended to supplement our prepared remarks during today's call and provides the reconciliation of differences between GAAP and non-GAAP financial measures. We have recast certain prior-period amounts to reflect the FY25 changes to the composition of our segments announced in August 2024.
Additional details, including FY23 and FY24 recast segment revenue, operating income, and product and service-level revenue can be found in the
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