Microsoft Q3 2021 Earnings Call Summary (NASDAQ: MSFT)

Prepared Remarks Summary

Financial Results Summary:

• Revenue: $41.7Bn (+19% YoY).
• EPS: $1.95 (+39% YoY).
• “It was a record quarter powered by our continued strength of our commercial cloud. Over a year into the pandemic, digital adoption curves aren’t slowing down. In fact, they’re accelerating and it’s just the beginning. Digital technology will be the foundation for resilience and growth over the next decade. We are innovating and building the cloud stack to accelerate the digital capability of every organization on the planet.” — Satya Nadella, CEO

Cash Flow:

• Free cash flow: $17.1Bn.
• Operating Cash Flow: $22.8Bn (+27% YoY, driven by strong billings and collections).
• CAPEX: $6Bn.
• Cash paid for PP&E: $5.1Bn.
• Returned $10Bn to shareholders.

Outlook:

• Productivity and Business Processes revenue: $13.8-14.05Bn.
• Intelligent Cloud: $16.2-16.45Bn.
• More Personal Computing: $13.6-14Bn.
• Significant demand for new Xbox consoles will continue to be constrained by supply.
• COGS: $13.7–13.9Bn.
• Operating Expenses: $13.1–13.2Bn.

Other Financial Results:

• Commercial bookings up 39%.
• Commercial remaining performance obligations: $117Bn. Half is expected to be recognized in the coming 12 months.
• Commercial cloud revenue: $17.7Bn (+33% YoY).
• Commercial cloud gross margins up 3pts to 70%.
• Headcount up 12% YoY.

Productivity and Business Processes Segment:

• Revenue: $13.6Bn (+15% YoY, driven by Office 365 and LinkedIn).
• Office Commercial revenue up 14%.
• Office 365 Commercial revenue up 22%.
• Paid Office 365 Commercial sets grew 15% YoY to $300MM.
• Office Consumer revenue up 5%.
• LinkedIn revenue up 25%. Marketing Solutions accelerated to 64% growth.

Intelligent Cloud Segment:

• Revenue: $15.1Bn (+23% YoY).
• Azure revenue increased 50%.

More Personal Computing Segment:

• Revenue: $13Bn (+19% YoY).
• OEM revenue growth of 10%.
• Surface revenue up 12%.
• Gaming revenues up 50%.
• New consoles drove Xbox revenues up 232%.

Azure:

• “As the world’s COGS become more digital, computing will become more ubiquitous and decentralized. We are building Azure to address organizations’ needs in a multi-cloud, multi-edge world. We have more data center regions than any other provider, including new regions in China, Indonesia, Malaysia as well as United States.” — Satya Nadella, CEO
• Azure Arc extends the Azure control plane across on-premise, multi-cloud and the edge.
• Azure Synapse accelerates time to insight by bringing together data integration, enterprise data warehousing and big data analytics in one service.
• Queries performed using Synapse have increased 105% QoQ.

Developers:

• Visual Studio has more than 25MM MAU.
• GitHub has nearly 65MM developers.
• The number of monthly active organizations using GitHub is up 70% in the past year.
• Power Platorm MAU: 16MM (+97% YoY).
• OpenAI models are trained and hosted on Azure.
• GPT-3 is generating over 4.5Bn words a day.
• “As the virtual and physical worlds converge, the comprised of digital twins, simulated environments and mixed reality is emerging as a first-class platform. We are leading and seeing traction across public and private sector. Bentley Systems is building a digital twin of the city of Dublin to reimagine urban planning user Azure Digital twins as well as Azure IoT. PepsiCo is simulating its manufacturing processes to improve product consistency using our autonomous systems platform.” — Satya Nadella, CEO
• U.S Army will use HoloLens based headsets augmented with cloud services.

LinkedIn:

• Total members: 756MM.
• Record engagement, with conversations up 43%, content share up 29%, and hours on the platform up 80%.
• 60% of Fortune 500 companies use LinkedIn Leaning to skill and upskill employees.
• LinkedIn marketing solutions revenue up 60% YoY.
• Yearly revenue has surpassed $3Bn and is growing 3x faster than B2B digital advertising market.

Microsoft 365 and Teams:

• Teams DAU: 145MM.
• Teams usage has continued to grow in markets where employees have returned to the workplace.
• Number of organizations with more than 1,000 users has increased nearly 3X YoY.
• Office 365 has 300MM paid seats.
• Microsoft 365 users generated more than 38Bn collaboration minutes in a single day in Q1.
• Microsoft 365 consumer surpassed 50MM subscribers.
• Windows 10: 1.3Bn monthly active devices.

Security:

• “The threat landscape has never been more complex or challenging and security has never been more critical to our customers. This is driving increased demand for our end-to-end capabilities across identity, security, compliance and management backed by cloud-scale AI and human expertise encompassing all clouds and all platforms.” — Satya Nadella, CEO
• +400,000 customers.
• Defender has blocked 30 billion threats on e-mail and nearly 7 billion on endpoints over the past year.

Gaming:

• Record engagement in Xbox during the quarter.
• “With Game Pass, we are redefining how games are distributed, played and viewed. Just last week, we added cloud gaming via the browser expanding our reach across PC and mobile.” — Satya Nadella, CEO
• Minecraft MAU: 140MM (+30% YoY).
• Building new tools to help creators.
• Creators have generated over $350MM from add-ons and other experiences in Minecraft.

Full Transcript: Fincredible Earnings