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Microsoft reports strong Windows, Xbox, and cloud growth for Q3 2021

Microsoft reports strong Windows, Xbox, and cloud growth for Q3 2021

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Another solid quarter for Microsoft

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Photo by Sam Byford / The Verge

Microsoft posted the third quarter of its 2021 financial results today, reporting revenue of $41.7 billion and a net income of $15.5 billion. Revenue is up 19 percent, and net income has increased by 44 percent. Once again, Microsoft has seen strong growth for Xbox and cloud-related services.

The PC market isn’t slowing down, despite a global chip shortage, and Microsoft is benefiting from this once again. Windows OEM revenue has grown by 10 percent, reflecting the strong consumer PC demand. Windows non-pro OEM revenue also grew 44 percent, and only Windows OEM Pro revenue declined by 2 percent.

This is surprising growth for Windows over all, and reflects the pandemic demand we’ve seen for laptops and PCs over the past year. During an earnings call, Microsoft CEO revealed there are now 1.3 billion active Windows 10 devices. We’re now expecting Microsoft to detail some of its upcoming changes to Windows 10 at Build next month, and the planned “sweeping visual rejuvenation of Windows.”

The Surface Laptop 4 15-inch open on a picnic table with a pink apartment building in the background. The screen displays sand dunes with a blue sky.
Surface Laptop 4.
Photo by Monica Chin / The Verge

Speaking of PCs, Surface hit a $2 billion business milestone in the previous quarter, and Microsoft has recorded $1.5 billion of revenue in Q3, 2021. That may look like a dip, but it’s actually still up 12 percent year over year during what’s usually a quiet quarter for Surface sales.

While Microsoft just unveiled its new Surface Laptop 4 and accessories earlier this month, the Surface Pro 7 Plus also debuted for businesses and schools during this recent quarter. The Surface Pro is Microsoft’s most popular Surface device, and this latest model includes a bigger battery, Intel’s 11th Gen processors, a removable SSD, and LTE.

Xbox Series X.
Xbox Series X.

Microsoft is also home to Xbox hardware and games, and once again revenue has grown across gaming. This is the second quarter of sales of Microsoft’s Xbox Series X and Series S consoles, and hardware revenue has grown by a massive 232 percent thanks to these next-gen consoles.

Xbox content and services revenue has also increased $739 million (34 percent) compared to the same quarter last year, driven by third-party titles, Xbox Game Pass subscriptions, and first-party games. Gaming became a key hobby for many during 2020, and that trend has remained throughout 2021. Microsoft’s overall gaming revenue is up $1.2 billion (50 percent), after reaching $5 billion for the first quarter ever last quarter, thanks mainly to Xbox content, services, and Xbox hardware.

Microsoft has not provided fresh Xbox Game Pass subscriber numbers this quarter, after the company revealed it had 18 million subscribers during the previous quarter. Microsoft has been regularly revealing Xbox Game Pass numbers over the past year, so we’d expect to hear how the service is growing soon.

Microsoft 365 for consumers has grown.
Microsoft 365 for consumers has grown.

While hardware and Windows are Microsoft’s main consumer-facing businesses, cloud services are huge on the commercial side. Office commercial and cloud services revenue has grown 14 percent this quarter, along with Office 365 commercial growth of 22 percent. Microsoft Teams usage has also jumped to 145 million daily active users, and there are now nearly 300 million paid Office 365 seats.

Even Office consumer offerings are doing well for Microsoft. Office consumer products and cloud services revenue grew 5 percent this quarter, thanks to Microsoft 365 Consumer subscription revenue and a big 27 percent jump in subscribers to 50.2 million.

Elsewhere, Microsoft’s server products and cloud services revenue is up 26 percent, with the entire “intelligent cloud” part of Microsoft’s business up 23 percent thanks to Azure growth.

Microsoft breaks down its sprawling businesses into three main buckets: Productivity and Business Processes, Intelligent Cloud, and More Personal Computing. The More Personal Computing bucket includes Windows, Surface, Xbox, and search, and it has contributed $13 billion to Microsoft’s overall $41.7 billion this quarter. That’s around 31 percent.

Intelligent Cloud, which includes server products and Azure, makes up $15.1 billion this quarter — around 36 percent. And finally, Productivity and Business Processes contributes $13.6 billion, nearly 33 percent. That’s not a perfect split between all three buckets of different businesses, but it’s impressive that Microsoft still has such diverse revenue sources.

Update, April 27th 6:30PM ET: Article updated with comments from Microsoft’s earnings call.

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