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Microsoft’s cloud bet continues to pay off in latest earnings

Microsoft’s cloud bet continues to pay off in latest earnings


Xbox and Office also doing well

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Microsoft posted its second quarter of its 2018 financial results today, reporting revenue of $28.9 billion and net income of $7.5 billion. Revenue has jumped 12 percent year-over-year during the holiday quarter, and the trend of Microsoft’s success with the cloud has continued. This time around, Azure revenue has increased by a massive 98 percent.

Surface revenue is up just 1 percent, probably due to the only new Surface device in the quarter being the Surface Book 2 that launched in mid November. Microsoft refreshed its Surface Pro and introduced a new Surface Laptop earlier in 2017, but it’s still surprising to see these haven’t produced big gains to Surface revenue over the crucial holiday period.

Windows OEM revenue is up 4 percent year-over-year, but Windows commercial products and cloud services revenue decreased 4 percent due to what Microsoft describes as a “large deal in the prior year.” The PC market recently achieved its first holiday quarter shipment growth in six years, according to IDC, and it looks like Microsoft has benefited from that.

LinkedIn is starting to make an impact

This is now the third full quarter Microsoft has included LinkedIn contributions to its overall results, and the social network was responsible for $1.3 billion of revenue. We’ll have a better idea of how that revenue compares year-over-year when Microsoft reports its Q3 2018 financial results in a few months, but it’s clearly LinkedIn is already a big part of Microsoft and we’re starting to see Office integrated with the social network. Microsoft will now be looking to keep the costs associated with integrating LinkedIn down, alongside some meaningful use of LinkedIn data and services, to ensure its data and social networking bet is worth $26 billion.

Xbox One X
Xbox One X
Photo by Nick Statt / The Verge

Xbox revenue is up thanks to the X

Microsoft also launched its new Xbox One X console partway through the recent quarter, and it’s had a positive 8 percent impact on overall gaming revenue. Xbox hardware revenue itself has increased 14 percent year-over-year, thanks to the launch of the Xbox One X. Even Xbox software and services revenue has grown 4 percent, alongside a 7 percent increase in active Xbox Live users. There are now 59 million people actively using Xbox Live.

Microsoft CEO Satya Nadella promised that the company is “mobilizing to pursue our extensive opportunity in a 100-plus-billion gaming market” at the company’s shareholders meeting in November, and we’re starting to see evidence of that. Microsoft acquired PlayFab recently, a platform of services that help developers build and launch cloud-connected games. Nadella has also promised to broaden Microsoft’s “approach to how we think about gaming end to end, about starting with games and how they’re creating and distributed, and how they’re played and viewed.” We’re still waiting to see a new approach to how games are played or viewed, but it’s still early in 2018 so far.

Overall server and cloud services revenue grew 18 percent year-over-year, alongside the massive 98 percent jump in Azure revenue. It’s clear Microsoft’s future growth and revenue opportunities are with the cloud, so it’s no surprise to see the company continually investing there to be competitive with Amazon. Microsoft’s Office 365 subscription bet for consumers is also paying off. 29.2 million people are now using Office 365 on the consumer side, with revenue increasing 12 percent year-over-year for Office consumer and cloud. On the commercial side, Office revenue is also up at a 10 percent increase since the same period last year

Microsoft will now hold an earnings call at 5:30PM ET / 2:30PM PT, and we’ll update this article with any relevant information.