- Microsoft Corporation (NASDAQ: MSFT) announced its Q3 2020 earnings report earlier this week. Here are 14 highlights from the earnings report.
Microsoft Corporation (NASDAQ: MSFT) announced its Q3 2020 earnings report earlier this week and the company revealed growth in sales and profits. The profit for the quarter ended March 31 increased to $10.8 billion ($1.40 per share). And sales jumped 15% to $35 billion.
While many companies have been negatively impacted due to the COVID-19 pandemic, Microsoft’s cloud offerings have seen an increase in demand, including Office and Azure. Plus Microsoft’s Surface devices also did better than expected due to a recovery in supply chains based out of China. However, Microsoft was unable to expand its cloud data centers as much as it was planning. This caused some capacity issues for Azure and Office Cloud.
Some of the slowdowns Microsoft has seen due to the economic crisis associated with the COVID-19 pandemic include one-time software purchases and advertising spending on its professional social network LinkedIn.
Microsoft chief financial officer Amy Hood said that the company is still planning to launch its next-generation Xbox game console this holiday season. Microsoft pointed out that the Xbox Live gaming service has seen an all-time high engagement with 90 million active users.
The Teams collaboration service now has 75 million daily active users. The surge in demand resulted in Microsoft having to put limits on the usage and the prioritization of healthcare and government users.
Here are 15 highlights from the Microsoft Corporation (NASDAQ: MSFT) Q3 2020 earnings report worth checking out from CEO Satya Nadella and CFO Amy Hood
1.) Satya Nadella – “As COVID-19 impacts every aspect of our work and life, we have seen two years’ worth of digital transformation in two months. From remote teamwork and learning to sales and customer service to critical cloud infrastructure and security, we are working alongside customers every day to help them stay open for business in a world of remote everything.”
2.) Satya Nadella – We’re accelerating Teams innovation, adding new capabilities each week, and now support meetings of all sizes: meetings that scale from 250 active participants to live events for up to 100,000 attendees to streaming broadcasts. We saw more than 200 million meeting participants in a single day this month, generating more than 4.1 billion meeting minutes. Teams now has more than 75 million daily active users, engaging in rich forms of communication and collaboration, and two-thirds of them shared, collaborated, or interacted with files on Teams. And number of organizations integrating their third-party and Line Of Business apps with Teams has tripled in the past 2 months.”
3.) Satya Nadella – “Windows 10 now has more than 1 billion monthly active devices, up 30% year-over-year. And we are seeing demand for Windows 10 PCs from small screens to large screens to dual screens.”
4.) Satya Nadella – “LinkedIn is where more than 690 million professionals go to connect, learn new skills and find new opportunities, contributing to record levels of engagement across the platform in Q3. We are helping organizations attract, retain and develop talent with our portfolio of Talent Solutions, Talent Insights, Glint, and LinkedIn Learning. Professionals watched nearly 4 million hours of content on LinkedIn Learning in March (a nearly 50% increase month-over-month). With LinkedIn Live, people and organizations can broadcast video content to their networks in real-time. Streams are up 158% since February. And the combination of LinkedIn Sales Navigator and Dynamics 365 gives sales professional tools for more effective remote selling.”
5.) Satya Nadella – People everywhere are turning to gaming to sustain human connection while practicing social distancing. And we continue to deliver new, exclusive first- and third-party content to attract and retain gamers. We saw all-time record engagement this quarter with nearly 19 million active users of Xbox Live led by the strength on- and off-console. Xbox Game Pass has more than 10 million subscribers. And we are seeing increased monetization of in-game content and services. Our Project xCloud gaming service now has hundreds of thousands of users in preview across seven countries with eight more launching in the coming weeks.
6.) Amy Hood – “Q3 revenue was $35 billion, up 15% and 16% in constant currency. Gross margin dollars increased by 18% and 20% in constant currency. Operating income increased by 25% and 28% in constant currency. Our earnings per share was $1.40, increasing 23% and 27% in constant currency… Let me take a moment to discuss the impact of COVID-19 on the quarter. In our consumer business, the landscape evolved quickly following our mid-quarter guidance update. The supply chain in China returned to more normal operations at a faster pace than we had anticipated and we saw increased demand from work, play, and learn-from-home scenarios, benefiting Windows OEM, Surface, Office Consumer, and Gaming. This was partially offset by a significant reduction in advertising spend — which impacted our Search and LinkedIn businesses.”
7.) Amy Hood – “Our commercial revenue annuity and mix increased two points year-over-year to 92%. And commercial cloud revenue was $13.3 billion, growing 39% and 40% in constant currency. Commercial cloud gross margin percentage increased 4 points year-over-year to 67%. There was a significant improvement in Azure gross margin percentage, including some benefit from short-term utilization gains as we worked through COVID-19-related supply chain constraints more than offset sales mix shift to Azure. In Azure, revenue growth will again be driven by our consumption-based business with continued strong growth across our customer base though we expect some moderation in the most impacted industries and segments. And in our per user business, growth will be impacted by the increasing size of the installed base.”
8.) Amy Hood – “In line with expectations, revenue from Productivity and Business Processes was $11.7 billion, increasing 15% and 16% in constant currency. Office Commercial revenue grew 13% and 15% in constant currency. And Office 365 Commercial revenue grew 25% and 27% in constant currency, again driven by installed base growth across all workloads and customer segments as well as higher ARPU with strong upsell to E5. And Office 365 Commercial seats grew 20% to nearly 258 million, with an increasing mix from Microsoft 365… In Productivity and Business Processes, we expect revenue between $11.65 billion and $11.95 billion. Approximately 80% of this revenue comes from the earnout on existing contracts and agreement renewals. The remaining 20% of revenue, primarily from annuity agreements, transactional licensing and LinkedIn is subject to more volatility in the current environment.”
9.) Amy Hood – “Office Consumer revenue grew 15% and 17% in constant currency, driven by growth in Office 2019 and Office 365 subscription revenue. Office 365 Consumer subscribers grew to 39.6 million, benefiting from the increased demand noted earlier. Dynamics revenue grew 17% and 20% in constant currency, driven by Dynamics 365 growth of 47% and 49% in constant currency. LinkedIn revenue increased 21% and 22% in constant currency as early quarter momentum was slightly offset by the slowdown in advertising.”
10.) Amy Hood – (The Intelligent Cloud segment) revenue was $12.3 billion, increasing 27% and 29% in constant currency, ahead of expectations, driven by continued customer demand for our hybrid offerings. On a significant base, server products and cloud services revenue increased 30% and 32% in constant currency. Azure revenue grew 59% and 61% in constant currency, driven by continued strong growth in our consumption-based business.”
11.) Amy Hood – (Personal Computing) revenue was $11 billion, increasing 3% and 4% in constant currency, ahead of the revised expectations from our mid-quarter guidance update as better-than-expected Windows OEM, Surface, and Gaming revenue more than offset lower-than-expected Search revenue. OEM as well as Surface revenue benefited from the improved supply chain in China, increased demand from remote scenarios and continued Windows 7 end of support dynamics. In OEM non-Pro, those dynamics were offset by continued pressure in the entry-level category. In More Personal Computing, we expect revenue between $11.3 billion and $11.7 billion. Roughly 75% of this revenue across OEM, Surface, Search and Gaming is earned in quarter. In Windows, overall OEM revenue growth should be low- to mid-single digits on a strong prior year comparable. In Windows Commercial products and cloud services, we expect mid-single-digit revenue growth with headwinds from our transactional business and the previously mentioned sales dynamics.”
12.) Amy Hood – “Windows Commercial products and cloud services grew 17% and 18% in constant currency, again driven by Microsoft 365 and demand for our advanced security solutions. Search revenue ex-TAC increased 1% (below our expectations), driven by significantly reduced advertising spend. And in Gaming, revenue declined 1% and was relatively unchanged in constant currency, driven by higher user engagement than expected. Xbox’s content and services revenue increased 2% on a high prior year comparable with strong growth in Game Pass subscribers and Minecraft.”
13.) Amy Hood – “Our focus remains on strategically managing the company for the long term, with decisions optimized for delivering greater customer value and long-term financial growth and profitability. With that, we’ll continue to provide increased support to our customers and partners as they navigate the uncertain future ahead, deepening our engagement and adding increased value. We will continue to aggressively expand our cloud infrastructure to support not only the usage surges of today but the growing customer demand for our unique and differentiated cloud offerings in the future.”
14.) Satya Nadella: “What is happening in a meeting is the important context that can’t get lost. That’s what’s going to have continuity, whether it’s the whiteboard you created, it’s the one note you shared, it’s the document you edited together, it’s a business process alert that you are responding to. Thinking that through holistically is the most important thing. And that’s where our focus will be… One of the most exciting things to me that happened even in this COVID response, people were able to use Power Platform to build new applications in hours, put that into Teams, and then get their first-line workers to be able to track (say, PPE because there was no ERP system that did that). That ability to digitize at high rates and do it in the context of how people work and collaborate, I think, speaks to the power of the Teams platform. And when Teams does well, all of Microsoft 365 does well.”
