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    Microsoft’s FY2024 Q3 Earnings: Azure Boosts Profits by 31%, Copilot and AI Services Propel Revenue

    Microsoft posted revenues of $61.9 billion and net income of $21.9 billion for FY2024 third quarter that ended on March 31, 2024, up by 17% and 20% respectively as compared to the corresponding period in the last fiscal year. The company’s revenue growth was driven by a boost in business from Microsoft Cloud, which surpassed $35 billion in revenue, and demand for other services including Microsoft Azure, and Microsoft Copilot.

    During the company earnings call, Microsoft Chief Financial Officer Amy Hood pointed out that the revenue for Azure and other cloud services grew 31%, while server products recorded a revenue growth of 24%. On the other hand, the company incurred capital expenditures worth $14 billion directed towards demand for cloud services as well as to support scaling the AI infrastructure.

    “We expect capital expenditures to increase materially on a sequential basis driven by cloud and AI infrastructure investments….We continue to bring capacity online as we scale our AI investments with growing demand. Currently, near-term AI demand is a bit higher than our available capacity,” Hood noted.

    Key takeaways:

    • Revenue in Productivity and Business Processes was $19.6 billion and increased 12%. This includes revenues from Microsoft Office Commercial Products, Consumer Products, other Cloud Services, and LinkedIn.
    • Revenue in Intelligent Cloud was $26.7 billion and increased 21%. This includes server products, Azure, and other cloud services.
    • Revenue in More Personal Computing was $15.6 billion and increased 17%. This includes Windows OEM, Windows Commercial products, Xbox content and services including acquisition of Activision, and search and advertising revenue.
    • Bing reached over 140 million daily active users.

    What’s driving the demand for Microsoft Azure offerings?

    Microsoft CEO Satya Nadella highlighted the growth in business outcomes driven by the demand for Microsoft Copilot and Copilot Stack, Azure OpenAI Service, and GitHub Copilot services. Noting Microsoft’s partnership with OpenAI, Nadella informed that over 65% of the Fortune 500 businesses use Azure OpenAI service.

    “The number of 100 million dollar-plus Azure deals increased over 80% year-over-year, while the number of 10 million dollar-plus deals more than doubled,” he added.

    During the earnings call, Nadella also stated that usage of Azure for those working an any AI project has significantly brought in new customers. Additionally, Azure Search is emerging as one of the fastest growing services for the company. Nadella noted that adjacent services in Azure that get attached to AI are driving demand and migrations to Azure as well.

    Expansion of Copilot services

    “Nearly 60% of the Fortune 500 now use Copilot, and we’ve seen accelerated adoption across industries and geographies, with companies like Amgen, BP, Cognizant, Koch Industries, Moody’s, Novo Nordisk, NVIDIA, and Tech Mahindra purchasing over 10,000 seats,” Nadella stated adding that Copilot is also driving growth across the broader GitHub platform too. He also informed that 30,000 customers across every industry have utilised Copilot Studio to customize Copilot for Microsoft 365 or build their own, up 175% quarter-over-quarter.

    In response to a question regarding the company’s Copilot services and its use by rest of the industry, Nadella highlighted that the company’s focus is on building a copilot, which will essentially serve as an extension of the all the existing copilots. This is with the objective to bridge the “work and the work artifacts” inside of knowledge worker tools like Teams, Excel, PowerPoint, and Word, with the work flow, the business process and the business process data. He added that enterprises wish to ground copilot with enterprise data that exists in all Software-as-a-Service (Saas) applications and Microsoft’s Copilot Studio enables that.

    He explained: “And net-net, what happens is some of these knowledge worker tools that people have used all the time, because when you think about Teams, when you’re having a meeting, you’re not doing a random meeting. The meeting is in the context of some business process. It could be a supply chain meeting where you’re trying to understand which suppliers to bet on or what terms to do. And so, now you can access all of that data right in the Teams context.

    That’s, I think, what’s exciting for us, having built all these horizontal tools, which I would say were underappreciated for the amount of work, how people use those tools to make progress on business process. But we now get to bridge that between the business applications and knowledge worker tools more horizontally.”

    Teams and LinkedIn:

    Microsoft is looking to roll out a new version of Teams, which will work up to two times faster while using 50% less memory, for all customers. Nadella informed they have recorded over one million Teams Rooms for the first time, alongside new AI-powered features like automatic camera switching and speaker recognition.

    When it comes to LinkedIn, features like LinkedIn AI-assisted messages have showed a 40% higher acceptance rate and are accepted over 10% faster by job seekers. Focusing on AI, Nadella informed that AI-powered collaborative articles are driving engagement on LinkedIn, and other AI features have helped accelerate the growth of LinkedIn Premium, with revenue up 29% year-over-year.

    Rise in capital expenditure due to AI

    For Q4, Microsoft expects growth to be driven by Azure consumption business, adoption of Copilot for Microsoft 365, and continued contribution from AI. In March 2023, Microsoft had introduced Microsoft 365 Copilot, which essentially used LLMs to produce work-related output based on data sourced from Microsoft Graph and the Microsoft 365 apps used for business processes.

    In order to meet the growing demand for cloud and AI products, the company expects FY25 capital expenditures to be higher than FY24. “These expenditures over the course of the next year are dependent on demand signals and adoption of our services, so we will manage that signal thru the year. We will also continue to prioritize operating leverage and therefore, we expect FY25 operating margins to be down only about one point year-over-year, even with our significant cloud and AI investments as well as a full year of impact from the Activision acquisition,” CFO Hood stated during the call.

    Also Read:


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    The post Microsoft’s FY2024 Q3 Earnings: Azure Boosts Profits by 31%, Copilot and AI Services Propel Revenue appeared first on MediaNama.

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