Microsoft’s Q1 earnings boosted by cloud and Office as Surface and Xbox stall

Microsoft today reported its first quarter of financial performance in 2020, reporting revenue of $ 31.1 billion and net income of $ 11 billion. Sales increased 14% and net profit increased 21%. Once again, it's Microsoft cloud and Office sales that have generated solid revenue for the company as Surface and overall game revenues decline.

Microsoft's Surface sales performed well over the same period last year. In this quarter of the inexpensive Surface Go, Microsoft did not refresh or release Surface products, resulting in a 4% drop in sales. Microsoft blamed the "product lifecycle transition timing" for misses.

microsofts q1 earnings boosted by cloud and office as surface and xbox stall

New Surface Laptop 3 device
Photo of Amelia Holowaty Krales / The Verge

Microsoft has released updated Surface Pro 7 and Surface Laptop 3. Models that support USB-C. Software makers will launch Surface Pro X and new Surface Earbuds later this month. As a result, the next quarter will be an exciting time for Surface revenue.

In terms of games, revenue also decreased by 7%. This is overall game revenue, and Microsoft has recently changed how Xbox revenue reporting is made. We now separate the Xbox content and service growth rates individually, remaining "relatively unchanged" compared to the same period last year. It's amazing that the company is focusing on subscriptions like Xbox Live and Xbox Game Pass. Growth should begin in the next quarter and prove that these subscription bets are worth it.

Microsoft CEO Satya Nadella, along with investors, said that Minecraft was “more powerful than before” for companies that made record profits this quarter. Thanks to Felix "PewDiePie" Kjellberg's latest video, Minecraft is soaring once again on YouTube, making it part of the "Pewdiepie Effect". Microsoft CFO Amy Hood said that Gears 5 and Xbox Game Pass made sales in the second quarter, which offset last year's popular third-party games. Microsoft now expects overall game revenue to decline again in the next quarter and may fall by more than 20% due to lack of Xbox console sales.

Microsoft started previewing Project xCloud game streaming with four games. Available in USA, UK and Korea. The service was still in its infancy and the company has not yet disclosed the price or release date of the full xCloud service. Microsoft also plans to sell the Xbox Elite 2 controller for $ 179.99 on November 4.

youll need to eat taco bell to get microsofts xbox elite 2 controller early

Xbox Elite 2 Controller
Tom Warren / The Verge's picture

You are nearing Windows 7. Support deprecation occurred on January 14, and Microsoft has resulted in a significant increase in Windows licenses. Microsoft says Windows OEM Pro revenue grew by 19%, ahead of the overall commercial PC market. The end of support for Windows 7 is pushing this a lot, with a new focus on upgrading to Windows 10. Windows OEM non-professional sales fell by 7%, and once again Microsoft continued to blame the pressure on consumers for low-end competitive hardware. [19659012] Microsoft 365 agreement (combination of Office and Windows) also seems to have been adopted. If businesses wanted to modernize their license agreements and services, Windows commercial product and cloud service revenues grew by 26%. Microsoft CFO Amy Hood said in a currency with investors that in the second quarter of 2020, "OEM sales growth will be faster than the PC market."

Office is the true star of Microsoft's Q1 earnings show. Office 365 commercial sales increased 13% year over year, and Microsoft currently has 200 million Office 365 commercial subscribers. This is an increase of nearly 30% from the 150 million reported last year, showing that Microsoft is actually capturing business as it moves to the cloud.

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On the consumer side, 35.6 million people currently subscribe to Office. 365 for consumers, up from 32.5 million last year. Revenue has also increased by 5%, but most Microsoft Office growth is clear on the commercial side.

Cloud is the next major highlight of Microsoft's Q1. Server products and cloud services grew 30% year over year, and Azure revenue itself grew 59%. Microsoft continues to compete with Amazon, Salesforce, Google, and other competitors in order to adopt cloud services, and partners with some key companies.

Microsoft last year Sony, Samsung, Kroger and Albertson. The partnership provides cloud services announced last year under a five-year contract with Walmart.

Surface and game sales were clearly stagnant this quarter, but Microsoft's overall revenue across multiple businesses is still the same. Productivity and business process revenue was $ 11.1 billion, including Office commercial and consumer, LinkedIn and Dynamics. Intelligent Cloud has come in at $ 11 billion, including server products, cloud services, and enterprise services. Microsoft's personal computing bucket revenue is $ 11 billion, including Windows, Search, Xbox, and Surface.

All three of these revenue groups are worth about $ 11 billion each, which is impressive because of the diversity of the business we operate.

Update, October 23 at 6 pm (ET) Investor Satya Nadella and CEO of Microsoft CFO Amy Hood.

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