Microsoft has just released fourth-quarter earnings results that sent shares up to new all-time highs. Revenue was $110.4 billion and increased 14%, Operating income was $35.1 billion and increased 21%, Net income was $16.6 billion GAAP and $30.3 billion non-GAAP, Diluted earnings per share was $2.13 GAAP and $3.88 non-GAAP and GAAP results include a $13.7 billion net charge related to TCJA.
Microsoft’s results for Q4 outperformed analyst expectations, which were pegging revenue to fall somewhere in the $29 billion range. A large reason for that is the continued strength of Microsoft’s cloud and Office efforts, which have been exceptional performers for the company for some time.
In particular, the fourth quarter saw Microsoft’s Office commercial products and cloud services increase revenue by 10 percent, mostly driven by 38 percent growth in Office 365 commercial revenue. Meanwhile, Office consumer products and cloud services revenue was up by eight percent, with Office 365 consumer subscribers increasing to 31.4 million.
LinkedIn also saw a relatively large increase in revenue, posting 37 percent growth over the same period a year ago. Meanwhile, Microsoft’s Intelligent Cloud business, which includes its server products and cloud services, rose by 23 percent.
“We had an incredible year, surpassing $100 billion in revenue as a result of our teams’ relentless focus on customer success and the trust customers are placing in Microsoft,” said Satya Nadella, chief executive officer of Microsoft.
“Our early investments in the intelligent cloud and intelligent edge are paying off, and we will continue to expand our reach in large and growing markets with differentiated innovation.”
The following table reconciles financial results reported in accordance with generally accepted accounting principles (GAAP) to non-GAAP financial results. Additional information regarding non-GAAP definition is provided below. All growth comparisons relate to the corresponding period in the last fiscal year.
| Three Months Ended June 30, | ||||
| ($ in millions, except per share amounts) | Revenue | Operating Income | Net Income | Diluted Earnings per Share |
| 2017 As Reported (GAAP) | $25,605 | $7,682 | $8,069 | $1.03 |
| Restructuring Expenses | – | 306 | 243 | 0.03 |
| 2017 As Adjusted (non-GAAP) | $25,605 | $7,988 | $8,312 | $1.06 |
| 2018 As Reported (GAAP) | $30,085 | $10,379 | $8,873 | $1.14 |
| Net TCJA Impact | – | – | (104) | (0.01) |
| 2018 As Adjusted (non-GAAP) | $30,085 | $10,379 | $8,769 | $1.13 |
| Percentage Change Y/Y (GAAP) | 17% | 35% | 10% | 11% |
| Percentage Change Y/Y (non-GAAP) | 17% | 30% | 5% | 7% |
| Percentage Change Y/Y (non-GAAP) Constant Currency | 15% | 24% | 2% | 3% |
GAAP results include a net benefit of $104 million related to the Tax Cuts and Jobs Act (TCJA) for the three months ended June 30, 2018 and a charge of $306 million related to restructuring expenses for the three months ended June 30, 2017, which are excluded from our non-GAAP results.
Microsoft returned $5.3 billion to shareholders in the form of dividends and share repurchases in the fourth quarter of fiscal year 2018, an increase of 16% compared to the fourth quarter of fiscal year 2017.
“Exceptional sales execution delivered double-digit revenue growth across all segments and strong progress against our strategic priorities, anchored by commercial cloud revenue growing 53% year-over-year to $6.9 billion,” said Amy Hood, executive vice president and chief financial officer of Microsoft.
Revenue in Productivity and Business Processes was $9.7 billion and increased 13% (up 10% in constant currency), with the following business highlights:
- Office commercial products and cloud services revenue increased 10% (up 8% in constant currency) driven by Office 365 commercial revenue growth of 38% (up 35% in constant currency)
- Office consumer products and cloud services revenue increased 8% (up 6% in constant currency) and Office 365 consumer subscribers increased to 31.4 million
- LinkedIn revenue increased 37% (up 34% in constant currency) with continued acceleration in engagement highlighted by LinkedIn sessions growth of 41%
- Dynamics products and cloud services revenue increased 11% (up 8% in constant currency) driven by Dynamics 365 revenue growth of 61% (up 56% in constant currency)
Revenue in Intelligent Cloud was $9.6 billion and increased 23% (up 20% in constant currency), with the following business highlights:
- Server products and cloud services revenue increased 26% (up 24% in constant currency) driven by Azure revenue growth of 89% (up 85% in constant currency)
- Enterprise Services revenue increased 8% (up 7% in constant currency)
Revenue in More Personal Computing was $10.8 billion and increased 17% (up 16% in constant currency), with the following business highlights:
- Windows OEM revenue increased 7% (up 7% in constant currency) driven by OEM Pro revenue growth of 14%
- Windows commercial products and cloud services revenue increased 23% (up 19% in constant currency) driven by an increased volume of multi-year agreements and the mix of products that carry higher in-quarter revenue recognition
- Gaming revenue increased 39% (up 38% in constant currency) with Xbox software and services revenue growth of 36% (up 35% in constant currency) mainly from third party title strength
- Surface revenue increased 25% (up 21% in constant currency) driven by strong performance of the latest editions of Surface against a low prior year comparable
- Search advertising revenue excluding traffic acquisition costs increased 17% (up 16% in constant currency) driven by higher revenue per search and search volume
The following table reconciles financial results reported in accordance with GAAP to non-GAAP financial results. Additional information regarding non-GAAP definition is provided below. All growth comparisons relate to the corresponding period in the last fiscal year.
| Twelve Months Ended June 30, | ||||||
| ($ in millions, except per share amounts) | Revenue | Operating Income | Net Income | Diluted Earnings per Share | ||
| 2017 As Reported (GAAP) | $96,571 | $29,025 | $25,489 | $3.25 | ||
| Restructuring Expenses | – | 306 | 243 | 0.04 | ||
| 2017 As Adjusted (non-GAAP) | $96,571 | $29,331 | $25,732 | $3.29 | ||
| 2018 As Reported (GAAP) | $110,360 | $35,058 | $16,571 | $2.13 | ||
| Net TCJA Impact | – | – | 13,696 | 1.75 | ||
| 2018 As Adjusted (non-GAAP) | $110,360 | $35,058 | $30,267 | $3.88 | ||
| Percentage Change Y/Y (GAAP) | 14% | 21% | (35)% | (34)% | ||
| Percentage Change Y/Y (non-GAAP) | 14% | 20% | 18% | 18% | ||
| Percentage Change Y/Y (non-GAAP) Constant Currency | 13% | 17% | 15% | 16% | ||
GAAP results include a net charge of $13.7 billion related to TCJA for the twelve months ended June 30, 2018 and a charge of $306 million related to restructuring expenses for the twelve months ended June 30, 2017, which are excluded from our non-GAAP results.
Business Outlook
Microsoft will provide forward-looking guidance in connection with this quarterly earnings announcement on its earnings conference call and webcast.
Webcast Details
Satya Nadella, chief executive officer, Amy Hood, executive vice president and chief financial officer, Frank Brod, chief accounting officer, Carolyn Frantz, deputy general counsel and corporate secretary, and Michael Spencer, general manager of investor relations, will host a conference call and webcast at 2:30 p.m. Pacific time (5:30 p.m. Eastern time) today to discuss details of the company’s performance for the quarter and certain forward-looking information.
The session may be accessed at microsoft.com/en-us/investor. The webcast will be available for replay through the close of business on July 19, 2019.
Financial Performance Constant Currency Reconciliation
| Three Months Ended June 30, | ||||
| ($ in millions, except per share amounts) | Revenue | Operating Income | Net Income | Diluted Earnings per Share |
| 2017 As Reported (GAAP) | $25,605 | $7,682 | $8,069 | $1.03 |
| 2017 As Adjusted (non-GAAP) | $25,605 | $7,988 | $8,312 | $1.06 |
| 2018 As Reported (GAAP) | $30,085 | $10,379 | $8,873 | $1.14 |
| 2018 As Adjusted (non-GAAP) | $30,085 | $10,379 | $8,769 | $1.13 |
| Percentage Change Y/Y (GAAP) | 17% | 35% | 10% | 11% |
| Percentage Change Y/Y (non-GAAP) | 17% | 30% | 5% | 7% |
| Constant Currency Impact | $549 | $450 | $279 | $0.04 |
| Percentage Change Y/Y (non-GAAP) Constant Currency | 15% | 24% | 2% | 3% |
| Twelve Months Ended June 30, | ||||
| ($ in millions, except per share amounts) | Revenue | Operating Income | Net Income | Diluted Earnings per Share |
| 2017 As Reported (GAAP) | $96,571 | $29,025 | $25,489 | $3.25 |
| 2017 As Adjusted (non-GAAP) | $96,571 | $29,331 | $25,732 | $3.29 |
| 2018 As Reported (GAAP) | $110,360 | $35,058 | $16,571 | $2.13 |
| 2018 As Adjusted (non-GAAP) | $110,360 | $35,058 | $30,267 | $3.88 |
| Percentage Change Y/Y (GAAP) | 14% | 21% | (35)% | (34)% |
| Percentage Change Y/Y (non-GAAP) | 14% | 20% | 18% | 18% |
| Constant Currency Impact | 1,275 | 654 | 569 | $0.07 |
| Percentage Change Y/Y (non-GAAP) Constant Currency | 13% | 17% | 15% | 16% |
Segment Revenue Constant Currency Reconciliation
| Three Months Ended June 30, | |||
| ($ in millions) | Productivity and Business Processes | Intelligent Cloud | More Personal Computing |
| 2017 As Reported | $8,548 | $7,822 | $9,235 |
| 2018 As Reported | $9,668 | $9,606 | $10,811 |
| Percentage Change Y/Y | 13% | 23% | 17% |
| Constant Currency Impact | $228 | $182 | $139 |
| Percentage Change Y/Y Constant Currency | 10% | 20% | 16% |
Selected Product and Service Revenue Constant Currency Reconciliation
| Three Months Ended June 30, 2018 | |||
| Percentage Change Y/Y (GAAP) | Constant Currency Impact | Percentage Change Y/Y Constant Currency | |
| Office commercial products and cloud services | 10% | (2)% | 8% |
| Office 365 commercial | 38% | (3)% | 35% |
| Office consumer products and cloud services | 8% | (2)% | 6% |
| 37% | (3)% | 34% | |
| Dynamics products and cloud services | 11% | (3)% | 8% |
| Dynamics 365 | 61% | (5)% | 56% |
| Server products and cloud services | 26% | (2)% | 24% |
| Azure | 89% | (4)% | 85% |
| Enterprise Services | 8% | (1)% | 7% |
| Windows OEM | 7% | 0% | 7% |
| Windows commercial products and cloud services | 23% | (4)% | 19% |
| Search advertising excluding traffic acquisition costs | 17% | (1)% | 16% |
| Surface | 25% | (4)% | 21% |
| Gaming | 39% | (1)% | 38% |
| Xbox software and services | 36% | (1)% | 35% |
