Microsoft Revenue Hits $52.9B for Q3 FY23, Beating Estimates
The News: Microsoft revenue increased to $52.9 billion in the third quarter of fiscal year 2023, up seven percent from $49.4 billion one year ago, beating analyst consensus estimates as the software giant announced its Q3 FY2023 earnings figures on April 25 for the period ending March 31, 2023. Microsoft’s diluted earnings per share (EPS) price of $2.45 for Q3 beat analyst estimates of $2.24 as Microsoft and its competitors in the tech marketplace continue to battle challenging global macroeconomic conditions. Read the full Q3 FY23 earnings Press Release on the Microsoft Investor Relations website.
Microsoft Revenue Hits $52.9B for Q3 FY23, Beating Estimates
Analyst Take: Microsoft’s revenue increase of seven percent for Q3 was a highlight in what is an exceptionally good set of results for the company, with revenue growth in most categories outside its Surface PC product lines. In this economy, we believe that Microsoft’s overall Q3 results should certainly be seen as a win.
Also impressive is that Microsoft’s revenue and EPS numbers beat analyst estimates, which provides some confidence and evidence of the company performing well during a difficult global economic stretch.
Microsoft had a massive momentum quarter following its OpenAI investment and portfolio wide infusion of generative AI, which carried additional water for the company and was additive to the better-than-expected result.
Here are Microsoft’s latest Q3 financial results by the numbers:
- Q3 FY23 revenue of $52.9 billion, up seven percent from $49.4 billion for the same quarter one year ago. The Q3 FY23 revenue figure beat an average analyst consensus estimate of $51.12 billion from analysts at Investing.com.
- Q3 FY23 GAAP net income of $18.3 billion, up 9.4 percent from $16.7 billion one year ago.
- Q3 FY23 GAAP operating income of $22.4 billion, up 9.8 percent from $20.4 billion one year ago.
- Q3 FY23 GAAP gross margin of $36.7 billion, up 8.8 percent from $33.7 billion one year ago.
- Q3 FY23 diluted EPS of $2.45, up 10 percent from $2.22 per share one year ago. The EPS beat an average analyst consensus estimate of $2.24 per share from analysts at Investing.com.
Microsoft’s latest earnings performance provides reasonable indicators of where both the economy and the tech world are today as mid-2023 approaches. Microsoft revenue and other earnings figures are positive and show further growth potential, especially in its enterprise market segments.
Microsoft Revenue by Segment
By segment, Microsoft earnings figures showed good growth in Q3.
Microsoft’s Intelligent Cloud revenue rose 16 percent to $22 billion, up from $19 billion one year ago. In that division, server products and cloud services revenue increased 17 percent from a year ago, boosted by a 27 percent rise in Azure and other cloud services revenue growth.
Microsoft’s Productivity and Business Processes segment revenue hit $17.5 billion, up 11 percent from $15.8 billion one year ago. In that division, Office Commercial products and cloud services revenue rose by 13 percent, which included a 14 percent rise in revenue growth for Office 365 Commercial products. Also seeing a revenue increase in this division were Microsoft Dynamics products and cloud services revenue, which rose 17 percent with the help of Dynamics 365 revenue growth of 25 percent.
Microsoft’s Office Consumer products services revenue rose by one percent from a year ago, while the number of Microsoft 365 Consumer subscribers grew to 65.4 million. In addition, Microsoft’s LinkedIn revenue rose by eight percent.
In Microsoft’s More Personal Computing segment, revenue fell to $13.3 billion, a nine percent decrease from $14.6 billion one year ago. Also in this division, Windows OEM revenue fell by 28 percent, while Windows Commercial products and cloud services revenue increased by 14 percent. Gaming revenue for Xbox content and services revenue increased by three percent, while search and news advertising revenue rose by 10 percent, excluding traffic acquisition costs. Microsoft’s devices revenue fell by 30 percent from a year ago. This fall in device revenue is consistent with most of the major PC OEMs, so it shouldn’t have been surprising to anyone.
Overall, these numbers were anchored by Microsoft’s strategy of diversifying its business portfolio across the enterprise, cloud, and consumer markets to balance its performance and risks across the global economy.
Microsoft Revenue Guidance
Microsoft also provided some earnings guidance for its business segments for the fourth quarter of 2023.
In the Intelligent Cloud segment, Microsoft expects revenue to grow between 15 and 16 percent in constant currency, which would amount to about $23.6 billion to $23.9 billion.
The Productivity and Business Processes segment is expected to see revenue growth of 10 to 12 percent in constant currency, which would amount to about $17.9 billion to $18.2 billion.
In the Office Commercial segment, Office 365 revenue growth is expected to be driven by Office 365 with seat growth across customer segments. Office 365 revenue growth is expected to be about 16 percent in constant currency, with Microsoft’s on-premises business revenue declining to the low 30s.
The consumer Office segment is expected to see revenue growth in the mid-single digits, driven by Microsoft 365 subscriptions.
The company’s LinkedIn unit is expected to see mid-single digit revenue growth.
In the Microsoft Dynamics segment, revenue growth in the mid to high teens is expected in Q4, driven by ongoing growth in Dynamics 365.
Microsoft said its revenue growth will continue to be driven by Azure, with expected Q4 revenue growth between 26 percent to 27 percent in constant currency.
In its More Personal Computing segment, Microsoft said it expects revenue of $13.35 billion to $13.75 billion in Q4, with Windows OEM and Devices revenue declining in the low to mid-20s.
In Microsoft’s Gaming division, the company said it expects revenue growth in the mid to high-single digits. The recent CMA decision to block the Activision acquisition was a dark cloud over a great day for Microsoft—the pending appeal will be worth watching, albeit this felt like a shot across Microsoft’s ambitions by the newly crowned global innovation blockers that are the UK’s competition authority.
Microsoft Revenue Overview
Microsoft remains in an interesting position as enterprise tech continues to separate itself in the market from consumer tech, providing enterprise-fueled boosts in revenue as consumer sales continue to decline due to market changes. As PCs continue to make way for tablets, smartphones, and web-based computing, Microsoft Windows and its Surface laptop and tablet lines have more competitors that are pulling away sales, reducing the company’s earnings in those segments.
But Microsoft’s smart diversification over the last 10 years means the company still has plenty of firepower in the tech wars, including high-demand products covering automation, analytics, cloud, and other transformational technologies that can streamline and transform enterprises.
And as Generative AI grows in importance and development for enterprises, research, and consumer markets, Microsoft is making moves and working to drive its own strategies and direction in what is already proving to be a lucrative and highly impactful market.
We believe that 2023 will be a particularly interesting year to watch Microsoft as it takes on the new challenges and promise of Generative AI for enterprises and consumers, and as it delivers its own takes on these technologies. We are eagerly watching to witness the continuing impacts of AI, its OpenAI partnership, and the company’s recently announced plans to integrate ChatGPT into all the company’s products. It’s worth noting the pace of these announcements was incredible and has been one of the most aggressive offensive attacks on a market opportunity that we can recall since perhaps Apple entered the Smartphone market.
At the same time, Microsoft continues to show its financial discipline to weather the difficult ongoing macroeconomic conditions of the last several years of the Covid-19 pandemic, while managing its costs and growing its opportunities where customers are showing increased demands. We continue to maintain that this is a smart strategy by a dominant technology powerhouse and a well-run company like Microsoft.
Daniel Newman and his co-host of The Six Five Webcast, Patrick Moorhead of Moor Insights and Strategy discussed Microsoft earnings in their latest episode. Check it out here and be sure to subscribe to The Six Five Webcast so you never miss an episode.
Disclosure: The Futurum Group is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article.
Analysis and opinions expressed herein are specific to the analyst individually and data and other information that might have been provided for validation, not those of The Futurum Group as a whole.
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