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Microsoft Posts Double-Digit Increases in Q2 FY22

Another strong quarter, particularly in terms of revenue, income and earnings

A week after announcing its pending acquisition of Activision Blizzard, the company’s largest acquisition ever, Microsoft reports strong financials for the second quarter of fiscal year 2022, for the period ended December 31, 2021. The Redmond, Washington-based tech giant posted double-digit increases in virtually every category, including revenue, income and earnings. Revenue was $51.7 billion, a 20% increase year-over-year; net income was $18.8 billion, a 21% increase year-over-year; and diluted earnings per share were $2.48, a 22% increase year-over-year.

“Digital technology is the most malleable resource at the world’s disposal to overcome constraints and reimagine everyday work and life,” said Microsoft chairman and CEO Satya Nadella in a January 25, 2022 earnings release. “As tech as a percentage of global GDP continues to increase, we are innovating and investing across diverse and growing markets, with a common underlying technology stack and an operating model that reinforces a common strategy, culture, and sense of purpose.”

Second-quarter highlights

Other highlights for the quarter, by business segment, include the following:

Productivity and Business Processes

  • Revenue for this business segment was $15.9 billion, a 19% increase year-over-year.
  • Office Commercial products and cloud services revenue increased 14%, driven by 19% growth in Office 365 Commercial revenue.
  • Office Consumer products and cloud services revenue grew 15%.
  • The company now has 56.4 million Microsoft 365 Consumer subscribers, an increase of 2.3 million over the first quarter of fiscal year 2022.
  • LinkedIn revenue grew 37%.
  • Dynamics products and cloud services revenue grew 29%, driven by 46% growth in Dynamics 365 revenue.

Intelligent Cloud

  • Revenue for Intelligent cloud was $18.3 billion, a 26% increase year-over-year.
  • Server products and cloud services revenue increased 29%, driven by 46% growth from Azure and other cloud services.

More Personal Computing

  • Revenue for More Personal Computing was $17.5 billion, a 15% increase year-over-year.
  • Windows OEM revenue grew 25% year-over-year.
  • Windows Commercial products and cloud services revenue grew 13% year-over-year.
  • Xbox content and services revenue increased 10% year-over-year.
  • Search and news advertising revenue, not accounting for traffic acquisition costs, increased 32% year-over-year.
  • Surface revenue increased 8% year-over-year.

Third-quarter outlook

CFO Amy Hood provided the company’s third-quarter outlook, which does not account for Microsoft’s acquisition of Nuance which is set to close during the third quarter.

  • Microsoft Cloud’s gross margin will be flat year-over-year.
  • Capital expenditures will be slightly down.
  • Productivity and Business Processes will have estimated revenue between $15.6 billion and $15.85 billion.
  • Office consumer growth is expected to grow in the high single-digits as more consumers subscribe to Microsoft 365.
  • LinkedIn will yield revenue in the low-30% range.
  • Dynamics revenue will be in the mid-20% range.
  • Intelligent Cloud will bring in between $18.75 billion and $19 billion driven primarily by Azure.
  • More Personal Computing revenue is estimated to be between $14.15 billion and $14.45 billion.
  • In search and news advertising, Microsoft is estimating revenue growth in the mid- to high-teens.

“In closing, digital technologies are increasingly essential to empowering every person and organization on the planet to achieve more, and we are well-positioned with innovative, high-value products. Our diverse, yet connected portfolio of solutions spans end markets, customer sizes, and business models uniquely enabling us to deliver long-term revenue and profit growth,” said Hood on the January 25, 2022 earnings call.

Insider Take

As the pandemic continues, and remote work solutions continue to be critical, Microsoft posted another solid financial quarter with double-digit increases in virtually every category. The only category that didn’t hit double digits was Surface revenue, but it increased after seeing regular decreases. At the end of the first quarter for fiscal year 2022, Surface revenue dropped 17%, so this 25% swing is great for Microsoft. As long as Microsoft stays out of regulatory crosshairs, the company will have a solid fiscal year 2022, holding its position as a market leader in personal and professional computing, cloud services and soon gaming, as the acquisition of Activision Blizzard gets closer to being a reality.

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