Microsoft reported robust financial results in Q4 2024, led by significant investments in AI and cloud infrastructure. The company’s strategic focus on building platforms and tools powered by its AI assistant, Copilot, has positioned it as a leader in delivering innovative solutions to customers.
In 2024, Microsoft reported a strong fiscal year, with double-digit revenue and operating income growth. Its overall revenue increased surpassing 15.7% year-over-year to US$245.1 billion in 2024. Operating income and net income rose 23.6% and 21.8% year-on-year to US$109.4 billion US$88.1 billion respectively in 2024.
| Financial indicator | Q4 2023 (US$ million) | Q4 2024 (US$ million) | Percentage change |
| Revenue | 56,189 | 64,727 | +15.2% |
| Productivity and business processes | 18,291 | 20,317 | +11.1% |
| Intelligent cloud | 23,993 | 28,515 | +18.8% |
| More personal computing | 13,905 | 15,895 | +14.3% |
| Operating income | 24,254 | 27,925 | +15.1% |
| Net income | 20,081 | 22,036 | +9.7% |
Microsoft reported strong quarterly financial results with no significant impact from foreign exchange fluctuations. The operating income margin of the productivity and business processes segment was the highest compared to the other two in Q4 2024.
Productivity and Business Processes
This segment is the powerhouse driving the company’s core software and services offerings. This division includes a suite of applications and platforms designed to enhance productivity, communication, and collaboration for both individuals and businesses.
In terms of Microsoft’s office productivity suite, applications like Word, Excel, and PowerPoint continue to dominate the market. Office commercial revenue increased 12%, fuelled by the growth of Office 365, which saw a 13% uptick. This growth was underpinned by increased average revenue per user due to the momentum of E5 plans and the introduction of Copilot for Microsoft 365. The installed base of paid Office 365 commercial seats expanded across all customer segments, with strength in small and medium businesses and frontline worker offerings.
Microsoft Teams has become a central hub for communication and collaboration, driving significant growth for the segment.
Dynamics 365, a suite of enterprise resource planning and customer relationship management business applications, is gaining traction in the market. Dynamics revenue grew by 16%, driven primarily by Dynamics 365, which saw a 19% increase. This growth was attributed to consistent performance across all workloads and new businesses. As a professional networking platform, revenue from LinkedIn increased 10% because of premium subscriptions and ad revenue.
In Q1 2025, segmental revenue is expected to grow 10% to US$20.3 billion.
Intelligent Cloud
In this segment, Microsoft benefited from increased demand for Azure cloud services. The company reported strong commercial bookings growth. It secured significant long-term contracts, indicating customer confidence in its products and services and future revenue.
Azure is experiencing strong growth and gaining market because of increased AI adoption and platform expansion. The company expanded its data centre footprint globally, introduced new AI accelerators, and enhanced its platform for handling diverse workloads. As a result, profit margins decreased slightly. Its strong growth rates may fluctuate and be affected by contract timing and capacity constraints.
The segment faced challenges in certain areas. The enterprise mobility and security installed base grew by 10% to surpass 281 million seats, but the growth rate moderated due to factors outside the Microsoft 365 suite. Additionally, the on-premises server business experienced a slight decline in transactional purchasing, although demand for hybrid solutions remained strong.
In Q1 2025, this segment is expected to grow 10%.
More Personal Computing
This segment produces the widely used Windows operating system, along with Surface tablets and Xbox gaming consoles. This segment delivered above-expectations results, largely driven by the acquisition of Activision as well as strong performance in Windows commercial and search.
Windows commercial products and cloud services revenue grew 11% due to higher in-period revenue recognition from contract mix. However, devices revenue declined by 11% as the company focused on higher-margin premium products.
Search and news advertising revenue experienced significant growth, increasing by 19%, primarily due to improved execution and healthy volume growth driven by Bing and Edge. Both Bing and Edge gained market share, driven by AI integration.
Microsoft’s gaming division is experiencing significant growth. With a substantial increase in active users and a robust pipeline of new games, the company is expanding its reach across different platforms. The company is also investing in making games accessible to a wider audience through streaming services and expanding into new content formats like TV shows. Revenue from gaming increased 44% while Xbox content and services revenue increased 61%, led by the Activision acquisition. Microsoft’s own games performed better than expected but not games from third parties. Xbox hardware revenue decreased 42%.
In Q1 2025, this segment is expected to grow 9%. While PC sales are steady, growth in areas like gaming, search advertising, and Windows commercial products will drive overall revenue.
Key analyst questions
An analyst questioned whether Microsoft overspent on capital expenditures in anticipation of future AI demand. However, CEO Satya Nadella emphasized that the company is prioritizing investments based on product performance while focusing on building a product portfolio that aligns with customer needs across both infrastructure and applications. He also highlighted that Microsoft is managing capital expenditures carefully by aligning investments with actual global customer demand.
Nadella confirmed that AI drives increased adoption of its products and services. For instance, Microsoft 365 with the AI Copilot SaaS offering is growing faster than any previous Microsoft software suite. The company is seeing positive customer response and expanding market share in Microsoft 365, Dynamics, and Azure.
According to CFO Amy Hood, AI enhances the company’s margins due to the unified Azure AI stack, which is utilized both internally and externally. Microsoft leverages this unified platform to drive cost efficiency and profitability while managing hardware investments, such as CPUs and GPUs, flexibly based on demand, all while sustaining revenue growth. Additionally, the use of leases for data centres allows the company to manage the timing of cash payments, leading to fluctuations between capital expenditures and cash flow.
Microsoft’s Azure revenue growth was slightly lower than expected in Q4 due to weaker performance in some European markets. The company anticipates continued strong Azure growth in the first half of the year, driven by AI services and overall consumption. However, capacity constraints related to AI infrastructure will impact growth rates. Currently, Microsoft is working with third parties to provide some additional capacity to deploy the Azure platform.
Microsoft’s acquisition of Activision Blizzard is strategic as it expands their gaming portfolio across different platforms (console, PC, and mobile). This acquisition allows Microsoft to offer a wider range of games to a broader audience, potentially increasing their market share in the gaming industry. The goal is to grow revenue through software, services, and transactions in the gaming sector. This acquisition contributes to revenue growth but negatively affects profitability in the short term.
The fifth perspective
Microsoft’s strategic investments in AI and cloud computing are driving strong financial performance and positioning the company for continued growth. The company anticipates increased spending on infrastructure to support AI initiatives, which may temporarily impact profit margins. However, the long-term benefits of these investments are expected to outweigh the short-term costs. Revenue and operating income are expected to grow at double digits in 2025. Microsoft’s strong financial performance positions the company for continued growth and leadership in the tech industry.
