Microsoft reports $38 billion in Q4 2020 revenue: Azure up 47%, Surface up 28%, and LinkedIn up 10%

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Microsoft today reported earnings for its fourth fiscal quarter of 2020, including revenue of $38.0 billion, net income of $11.2 billion, and earnings per share of $1.46 (compared to revenue of $33.7 billion, net income of $13.2 billion, and earnings per share of $1.71 in Q4 2019). All three of the company’s operating groups saw year-over-year growth.

Microsoft is the first of the tech giants to report results of a full quarter during the coronavirus pandemic. In the previous quarter, Microsoft said that “COVID-19 had minimal net impact on the total company revenue.” In Q4 2020, “similar business trends to the previous quarter continued,” Microsoft said. Given its prominent role in the software and cloud industries, the company is worth watching. Unlike tech giants Google and Facebook, Microsoft does not generate the majority of its revenue from advertising and thus may weather the pandemic better. Those two, along with Apple and Amazon, report their respective quarterly earnings next week.

Analysts had expected Microsoft to earn $36.5 billion in revenue and report earnings per share of $1.37. The company thus easily beat expectations. The company’s stock was up 1% in regular trading but down 2% in after-hours trading. Microsoft returned $8.9 billion to shareholders in the form of share repurchases and dividends during the quarter.

COVID-19 impact on the quarter

“The last five months have made it clear that tech intensity is the key to business resilience. Organizations that build their own digital capability will recover faster and emerge from this crisis stronger,” Microsoft CEO Satya Nadella said in a statement. “We are the only company with an integrated, modern technology stack – powered by cloud and AI and underpinned by security and compliance – to help every organization transform and reimagine how they meet customer needs.”

A 47% revenue increase for Azure is bad news even though cloud growth was already slowing for the company. The figure has been falling steadily: 76% in Q2 2019, 73% in Q3 2019, 64% in Q4 2019, and 59% in Q1 2020. It rebounded slightly to 62% in Q2 2020 but returned to 59% in Q3 2020. Slowing growth is normal at Azure size, but the pandemic appears to be accelerating the trend.

Microsoft’s release noted that “cloud usage and demand increased as customers continued to work and learn from home. Transactional license purchasing continued to slow, particularly in small and medium businesses, and LinkedIn was negatively impacted by the weak job market and reductions in advertising spend.” More cloud usage but slower revenue growth means signing on new customers isn’t so easy in the pandemic. It may also suggest Microsoft is willing to delay or waive bills and fees for Azure customers in hopes of keeping them loyal in the long run. Microsoft does not break out exact Azure revenue numbers, likely to avoid comparisons with industry leader AWS.

Operating group highlights

Microsoft Q4 2020 earnings results

Microsoft Q4 2020 earnings results

Here are the highlights across Microsoft’s three operating groups:

  • Productivity and Business Processes: Up 6% to $11.8 billion. Office commercial revenue grew 5%, Office consumer and cloud revenue was up 6%, and Dynamics revenue increased 13%. LinkedIn revenue increased 10%, and Office 365 consumer subscribers hit 42.7 million.
  • Intelligent Cloud: Up 17% to $13.4 billion. Server products and cloud services revenue grew 19%, while Enterprise Services revenue was falt. The big number as always was Azure revenue, which was up 47%.
  • More Personal Computing: Up 14% to $12.9 billion. Windows OEM revenue was up 7% while Windows commercial revenue increased 9%. Search advertising revenue minus traffic acquisition costs fell 18%. Surface revenue increased by 28%, and Xbox content and services revenue increased 65%.

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