Microsoft Q4 2024: Cloud rules as Surface drops

Microsoft I just posted the fourth and final quarter of its fiscal 2024 financial results. The software maker had revenue of $64.7 billion and net income of $22 billion during the fourth quarter. Revenue increased by 15% and net profit increased by 10%.

Microsoft Intelligent Cloud revenues, which include the company’s server products and cloud services, were $28.5 billion in total and a 19% increase year over year. Revenue from this part of Microsoft’s business now represents almost 45% of all revenue. While cloud revenue is strong once again, Microsoft’s consumer device momentum continues to decline. Xbox hardware revenue fell again and Surface revenue fell for seven consecutive quarters in a row.

Windows OEM revenue, the price manufacturers pay to license Windows for laptops and PCs, is up 4% year over year. Gartner said earlier this month that PC shipments have grown for three consecutive quarters, and this is reflected in Microsoft’s Windows OEM growth in the same three quarters.

Microsoft also launched its new Copilot Plus PCs at the end of the fiscal fourth quarter, with a range of Qualcomm-powered devices available starting June 18. Two new Surface devices, the Surface Laptop 7th Edition and Surface Pro 11th Edition, were also launched in June. However, the full impact of sales on device revenue won’t be felt until next quarter.

That means Surface revenue, or what Microsoft now calls device revenue, fell again this quarter by 11%. The last time Microsoft’s Surface revenue increased was in the first quarter of fiscal 2023, the quarter ending September 30, 2022.

Microsoft has changed its hardware portfolio amid layoffs in early 2023, and the Surface Pro 10 and Surface Laptop 6 for businesses don’t appear to have had a big impact on revenue. All eyes are on the next quarter to see if the new Surface Laptop and Surface Pro launches help recover device revenue.

Xbox content and services revenue, which includes Xbox Game Pass, increased 61% this quarter. Activision Blizzard revenues once again contributed to the majority of revenues here, with 58 net impact points. Without Activision Blizzard revenues, Xbox content and services revenues will still have increased 3% year over year.

Microsoft revealed in February that Xbox Game Pass has now grown to 34 million subscribers, including Xbox Game Pass Core (formerly Xbox Live Gold) members. Microsoft is planning to soon launch a new Xbox Game Pass Standard plan, designed to replace the Xbox Game Pass for console offering for new subscribers.

Microsoft just released last year Call of Duty: Modern Warfare III on Xbox Game Pass, and is also planning to do Call of Duty: Black Ops 6the next installment in Activision’s popular franchise, available on Xbox Game Pass later this year.

Microsoft’s price increases for Xbox Game Pass Ultimate and PC Game Pass won’t take effect until September, with Game Pass Ultimate increasing to $19.99 per month — a $3 increase from the current price of $19.99 per month. $16.99 per month. PC Game Pass will also go up to $11.99 per month in September.

While there’s a lot of anticipation for new games on Xbox Game Pass, console sales are still struggling. Xbox hardware revenue fell a whopping 42% this quarter. Microsoft is planning to release a white discless Xbox Series X console later this year, along with a new Galaxy Black special edition Xbox Series X.

Microsoft has also recently been focusing on the “no Xbox required” message for its cloud streaming efforts. Microsoft’s Xbox TV app recently arrived on some Amazon Fire TV devices, as Microsoft shifts its attention away from just marketing console hardware.

Despite weak Xbox hardware revenue, Microsoft’s gaming revenue increased 44% overall, helped again by additional revenue from Activision Blizzard. In fact, that revenue added up to 48 points, so Microsoft’s overall gaming revenue would have fallen 4% if the company hadn’t acquired Activision Blizzard.

Microsoft’s cloud and Office revenues continue to grow as expected. Office commercial products and cloud services revenue grew 12%, with Office 365 commercial revenue increasing 13%.

On the consumer side of Office, revenue is up 3% year over year. Microsoft 365 Consumer subscribers also grew by 10%, now reaching 82.5 million. LinkedIn revenue also grew 10% this quarter.

Server products and cloud services revenue increased 21% this quarter, with Azure and other cloud services revenue increasing 29%. Investors continue to look for any signs of Microsoft’s AI revenue growth. This quarter, eight points of revenue growth for Azure and other cloud services were due to AI services, slightly above the previous quarter’s contribution.

Microsoft is now planning to hold a conference call with investors at 5:30 pm ET/2:30 pm PT. We will update this article with comments from CEO Satya Nadella and CFO Amy Hood.