Microsoft Corporate logo on building

Microsoft’s Cloud Services Drive 19% Revenue Increase

Company continues to thrive as companies and consumers transition to the cloud.

Cloud services continue to be a key driver in Microsoft’s growth. Earlier this week, the technology company reported its third quarter financials for fiscal year 2021. For the period ended March 31, 2021, Microsoft had total revenue of $41.7 billion, a 19% increase year-over-year. Commercial cloud revenue generated $17.7 billion of total revenue, a 33% increase year-over-year.

“It was a record quarter powered by our continued strength of our commercial cloud. Over a year into the pandemic, digital adoption curves aren’t slowing down. In fact, they’re accelerating and it’s just the beginning,” said Microsoft CEO Satya Nadella. “Digital technology will be the foundation for resilience and growth over the next decade. We are innovating and building the cloud stack to accelerate the digital capability of every organization on the planet.”

Quarterly highlights

Other highlights for the quarter include:

  • Operating income was $17.0 billion, a 31% increase year-over-year.
  • GAAP net income was $15.5 billion, or $2.03 diluted earnings per share.
  • Revenue in Productivity and Business Processes was $13.6 billion, a 15% increase.
  • Office Commercial products and cloud services revenue grew 14%, drive by Office 365 Commercial revenue growth of 22%.
  • Office Consumer products and cloud services revenue grew 5% and Microsoft 365 Consumer subscribers grew to 50.2 million from 45.3 million at the end of the second quarter of fiscal year 2021.
  • LinkedIn revenue grew 25%.
  • Dynamics products and cloud services revenue grew 26%, driven by Dynamics 365 revenue growth of 45%.
  • Revenue in Intelligent Cloud was $15.1 billion, representing 23% growth year-over-year. This includes server and cloud services revenue, driven by Azure revenue growth of 50% year-over-year.
  • Revenue in More Personal Computing was $13.0 billion, representing 19% growth year-over-year.
  • Windows OEM revenue grew 10%, and Windows Commercial products and cloud services revenue grew 10%.
  • Xbox content and services revenue increased by an impressive 34%.
  • Search ad revenue increased 17%, and Surface revenue grew by 12% year-over-year.

Business guidance for Q4 FY21

Microsoft provided the following guidance, by business segment, during its earnings call:

  • Productivity and Business Processes: Revenue is estimated to range between $13.8 billion and $14.05 billion.
  • Office Commercial revenue will be driven by Office 365.
  • On-premises business revenue is expected to decline in the high teens as more customers shift to the cloud
  • Office Consumer revenue will grow in the mid- to high teens as more consumers buy Microsoft 365 subscriptions.
  • LinkedIn revenue growth will continue in the double digits, in the mid-30% range.
  • Dynamics 365 revenue growth will continue at a pace similar to the third quarter.
  • Intelligent cloud revenue will range between $16.2 billion and $16.45 billion.
  • In More Personal Computing, the company expects revenue between $13.6 and $14 billion.

Insider Take

With cloud services and tools like Teams and LinkedIn, Microsoft has made itself invaluable, particularly during the pandemic when people need to stay connected and work remotely at the same time. Also, companies that have been slow to transition to the cloud are finding that they must do so, and they’ve chosen Microsoft to help them make the move. Under Nadella’s leadership, the company continues to thrive, and acquisitions like LinkedIn are adding value to Microsoft’s core services. As they continue to acquire companies, they’ll branch out and diversify their income, leaning into the subscription model to power their future.

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