Microsoft Cloud strength drives fourth quarter results
Jul 26, 2022
REDMOND, Wash. — Microsoft Corp. today announced the following results for the quarter ended June 30, 2022, as compared to the corresponding period of last fiscal year:
- Revenue was $51.9 billion and increased 12% (up 16% in constant currency)
- Operating income was $20.5 billion and increased 8% (up 14% in constant currency)
- Net income was $16.7 billion and increased 2% (up 7% in constant currency)
- Diluted earnings per share was $2.23 and increased 3% (up 8% in constant currency)
“We see real opportunity to help every customer in every industry use digital technology to overcome today’s challenges and emerge stronger,” said Satya Nadella, chairman and chief executive officer of Microsoft. “No company is better positioned than Microsoft to help organizations deliver on their digital imperative – so they can do more with less.”
“In a dynamic environment we saw strong demand, took share, and increased customer commitment to our cloud platform. Commercial bookings grew 25% and Microsoft Cloud revenue was $25 billion, up 28% year over year,” said Amy Hood, executive vice president and chief financial officer of Microsoft. “As we begin a new fiscal year, we remain committed to balancing operational discipline with continued investments in key strategic areas to drive future growth.”
Impact of Recent Events
In the fourth quarter of fiscal year 2022, evolving macroeconomic conditions and other unforeseen items had an impact on financial results beyond what was included in our forward-looking guidance provided on April 26, 2022.
- Unfavorable foreign exchange rate movement within the quarter negatively impacted revenue and diluted earnings per share $(595) million and $(0.04), respectively. Additional details are provided in the Earnings Call Slides.
- Extended production shutdowns in China that continued through May and a deteriorating PC market in June contributed to a negative impact on Windows OEM revenue of over $(300) million
- Reductions in advertising spend contributed to a negative impact on LinkedIn as well as Search and news advertising revenue of over $(100) million
- With the ongoing war in Ukraine, we made the decision to significantly scale down our operations in Russia. As a result, we recorded operating expenses of $126 million related to bad debt expense, asset impairments, and severance.
- As part of a strategic realignment of our business groups, we recorded employee severance expenses of $113 million, excluding Russia
Revenue in Productivity and Business Processes was $16.6 billion and increased 13% (up 17% in constant currency), with the following business highlights:
- Office Commercial products and cloud services revenue increased 9% (up 13% in constant currency) driven by Office 365 Commercial revenue growth of 15% (up 19% in constant currency)
- Office Consumer products and cloud services revenue increased 9% (up 12% in constant currency) and Microsoft 365 Consumer subscribers grew to 59.7 million
- LinkedIn revenue increased 26% (up 29% in constant currency)
- Dynamics products and cloud services revenue increased 19% (up 24% in constant currency) driven by Dynamics 365 revenue growth of 31% (up 36% in constant currency)
Revenue in Intelligent Cloud was $20.9 billion and increased 20% (up 25% in constant currency), with the following business highlights:
- Server products and cloud services revenue increased 22% (up 26% in constant currency) driven by Azure and other cloud services revenue growth of 40% (up 46% in constant currency)
Revenue in More Personal Computing was $14.4 billion and increased 2% (up 5% in constant currency), with the following business highlights:
- Windows OEM revenue decreased 2%
- Windows Commercial products and cloud services revenue increased 6% (up 12% in constant currency)
- Xbox content and services revenue decreased 6% (down 4% in constant currency)
- Search and news advertising revenue excluding traffic acquisition costs increased 18% (up 21% in constant currency)
- Surface revenue increased 10% (up 15% in constant currency)
Microsoft returned $12.4 billion to shareholders in the form of share repurchases and dividends in the fourth quarter of fiscal year 2022, an increase of 19% compared to the fourth quarter of fiscal year 2021.
Fiscal Year 2022 Results
Microsoft Corp. today announced the following results for the fiscal year ended June 30, 2022, as compared to the corresponding period of last fiscal year:
- Revenue was $198.3 billion and increased 18% (up 19% in constant currency)
- Operating income was $83.4 billion and increased 19% (up 21% in constant currency)
- Net income was $72.7 billion GAAP and increased 19%, and $69.4 billion non-GAAP and increased 15% (up 16% in constant currency)
- Diluted earnings per share was $9.65 GAAP and increased 20%, and $9.21 non-GAAP and increased 16% (up 17% in constant currency)
- GAAP results include a $3.3 billion net income tax benefit explained in the Non-GAAP Definition section below
Microsoft will provide forward-looking guidance in connection with this quarterly earnings announcement on its earnings conference call and webcast.
Quarterly Highlights, Product Releases, and Enhancements
Every quarter Microsoft delivers hundreds of products, either as new releases, services, or enhancements to current products and services. These releases are a result of significant research and development investments, made over multiple years, designed to help customers be more productive and secure and to deliver differentiated value across the cloud and the edge.
Here are the major product releases and other highlights for the quarter, organized by product categories, to help illustrate how we are accelerating innovation across our businesses while expanding our market opportunities.
Environmental, Social, and Governance (ESG)
To better execute on Microsoft’s mission, we focus our Environmental, Social, and Governance (ESG) efforts where we can have the most positive impact. To learn more about our latest initiatives and priorities, please visit our investor relations ESG website.
Transfer of Intangible Properties . In the first quarter of fiscal year 2022, Microsoft transferred certain intangible properties from our Puerto Rico subsidiary to the United States. The transfer of intangible properties resulted in a net tax benefit of $3.3 billion in the first quarter of fiscal 2022, as the value of future United States tax deductions exceeds the current tax liability from the United States Global Intangible Low-Taxed Income tax.
The India Supreme Court Decision Impact . In March 2021, the India Supreme Court issued a decision on withholding taxes in the case of Engineering Analysis Centre of Excellence Private Limited vs The Commissioner of Income Tax. Microsoft has historically paid India withholding taxes on software sales through distributor withholding and tax audit assessments in India. The India Supreme Court ruled favorably for companies in 86 separate appeals, some dating back to 2012, holding that software sales are not subject to India withholding taxes. Although Microsoft was not a party to the appeals, Microsoft’s software sales in India were determined to be not subject to withholding taxes. Therefore, Microsoft recorded a net income tax benefit of $620 million in the third quarter of fiscal year 2021 to reflect the results of the India Supreme Court decision impacting fiscal year 1996 through fiscal year 2016.
Microsoft has provided non-GAAP financial measures related to the transfer of intangible properties and the India Supreme Court decision to aid investors in better understanding our performance. Microsoft believes these non-GAAP measures assist investors by providing additional insight into its operational performance and help clarify trends affecting its business. For comparability of reporting, management considers non-GAAP measures in conjunction with GAAP financial results in evaluating business performance. The non-GAAP financial measures presented in this release should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP.
Microsoft presents constant currency information to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency rate fluctuations. To present this information, current and comparative prior period results for entities reporting in currencies other than United States dollars are converted into United States dollars using the average exchange rates from the comparative period rather than the actual exchange rates in effect during the respective periods. All growth comparisons relate to the corresponding period in the last fiscal year. Microsoft has provided this non-GAAP financial information to aid investors in better understanding our performance. The non-GAAP financial measures presented in this release should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP.
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