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Microsoft Beats on Top & Bottom Lines

January 26, 2017

Microsoft reported results for the quarter ended December 31, 2016. Microsoft completed the acquisition of LinkedIn on December 8, 2016. Financial results from the acquired business are reported in the Productivity and Business Processes segment. For the second quarter of fiscal year 2017, the results of LinkedIn, including amortization of acquired intangible assets, contributed revenue, operating income, net income, and diluted earnings per share of $228 million, $(201) million, $(100) million, and $(0.01), respectively.

Microsoft reported second quarter adjusted earnings per share of 83 cents on revenue of $26.07 billion. While investors were only looking for earnings of 79 cents a share on $25.3 billion in revenue.

“Our customers are seeing greater value and opportunity as we partner with them through their digital transformation,” said Satya Nadella, chief executive officer at Microsoft. “Accelerating advancements in AI across our platforms and services will provide further opportunity to drive growth in the Microsoft Cloud.”

Microsoft returned $6.5 billion to shareholders in the form of share repurchases and dividends in the second quarter of fiscal year 2017.

“I am pleased with our results this quarter. We see strong demand for our cloud-based services and are executing well on our long-term growth strategy,” said Amy Hood, executive vice president and chief financial officer at Microsoft.

Revenue in Productivity and Business Processes was $7.4 billion and increased 10% (up 12% in constant currency), with the following business highlights:

  • Office commercial products and cloud services revenue increased 5% (up 7% in constant currency) driven by Office 365 commercial revenue growth of 47% (up 49% in constant currency)
  • Office consumer products and cloud services revenue increased 22% (up 21% in constant currency) and Office 365 consumer subscribers increased to 24.9 million
  • Dynamics products and cloud services revenue increased 7% (up 9% in constant currency) driven by Dynamics 365 revenue growth
  • LinkedIn contributed revenue of $228 million for the period beginning on December 8, 2016

Revenue in Intelligent Cloud was $6.9 billion and increased 8% (up 10% in constant currency), with the following business highlights:

  • Server products and cloud services revenue increased 12% (up 14% in constant currency) driven by double-digit annuity revenue growth
  • Azure revenue increased 93% (up 95% in constant currency) with Azure compute usage more than doubling year-over-year
  • Enterprise Services revenue decreased 4% (down 2% in constant currency) with declines in custom support agreements offset by growth in Premier Support Services and consulting

Revenue in More Personal Computing was $11.8 billion and decreased 5% (down 4% in constant currency) driven primarily by lower phone revenue, with the following business highlights:

  • Windows OEM revenue increased 5% (up 5% in constant currency)
  • Windows commercial products and cloud services revenue increased 5% (up 6% in constant currency) driven by annuity revenue growth
  • Search advertising revenue excluding traffic acquisition costs increased 10% (up 11% in constant currency) driven by increased revenue per search and search volume
  • Gaming revenue decreased 3% (down 1% in constant currency) with lower Xbox console revenue offset by Xbox software and services revenue growth

Acquisitions and Divestitures

Microsoft completed the acquisition of LinkedIn on December 8, 2016 and the sale of its feature phone business in November 2016.

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