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On August 22, 2024
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Microsoft updates fiscal 2025 investor metrics, makes key segment changes
Microsoft (NASDAQ:MSFT) updated its fiscal year 2025 investor metrics on Wednesday, which included several significant segment changes. The Microsoft 365 commercial products and cloud services, which is included in the Productivity and Business Processes segment, will now include Enterprise Mobility and Security, which was previously in Azure under the Intelligent Cloud segment. Windows commercial products and cloud services revenue, which was in the More Personal Computing segment, will now be included in the PBP segment as well. The metric changes also affected the outlook for the first quarter of fiscal 2025. It increased the Productivity and Business Processes revenue to range from $27.75B to $28.05B versus the prior outlook of $20.3B to $20.6B. The More Personal Computing segment revenue outlook was decreased to range from $12.25B to $12.65B versus the outlook under the prior segmentation of $14.9B to $15.3B. More on Microsoft Microsoft: This Is The Time To Buy Microsoft: Why Now Is A Good Time To Invest In The Shares Buy Microsoft To Hedge Against Google Antitrust Defeat Condé Nast joins OpenAI's content provider list OpenAI offers fine-tuning for GPT-4o users to customize AI model
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Microsoft revamps reporting structure to give better visibility into cloud consumption revenue
Executive Chairman and CEO of Microsoft Corporation Satya Nadella speaks during the "Microsoft Build: AI Day" event in Bangkok, Thailand, May 1, 2024. Microsoft on Wednesday updated quarterly revenue guidance for its three business segments in a shift that stands to give investors better visibility into the software maker's growing cloud infrastructure business. The company is bulking up the Productivity and Business Processes segment that includes Office productivity software subscriptions with services that have for years appeared inside the Intelligent Cloud unit that features Azure. Productivity and Business Processes will also gain Windows commercial products and cloud services, a part of the More Personal Computing segment that includes volume licensing of the Windows operating system and cloud-based Windows tools. Microsoft is removing the Power BI data analytics tool and the Enterprise Mobility and Security group of products from a closely watched year-over-year growth metric called Azure and other cloud services. With those two moving out, the new Azure number "now more closely aligns to consumption business," Microsoft said in an investor presentation summarizing the changes. Consumption reflects commercial clients actively using computing and storage services in Azure. But Microsoft is adding revenue from its search and news advertising category -- which until now was under More Personal Computing -- into Azure and other cloud services. The company said it expects 33% constant-currency revenue growth for Azure and other cloud services under the new definition for the fiscal first quarter, down 1 to 2 percentage points from the fiscal fourth quarter. In late July, based on the prior Azure definition, the company had called for growth of 28% to 29% at constant currency. Historically, consumption has driven growth in Azure and other cloud services, rather than the per-user tools, where growth in the number of seats has slowed. "We got more visibility on Azure," said Jason Ader, an William Blair analyst with the equivalent of a buy rating on Microsoft shares. He cited the removal of the per-user elements of Azure growth that Microsoft has included in the tally for years, making it more difficult to understand consumption. Amazon discloses revenue for its market-leading Amazon Web Services division, but Microsoft's financial reporting method for Azure has featured the per-user pieces, meaning that making comparisons is not straightforward. Additionally, Microsoft said it will give Productivity and Business Processes some revenue stemming from its 2022 Nuance Communications acquisition that has appeared under Intelligent Cloud. And every quarter the company will disclose a combined growth rate for Windows and for devices, instead of communicating them separately, given that these are both PC-oriented. A new metric called Microsoft 365 Commercial will appear inside the Productivity and Business Processes segment. It will include revenue from Office commercial products and cloud services, Power BI, Enterprise Mobility and Security and Windows commercial products and cloud services. The change comes "to align how the business is managed," Microsoft said in the presentation. But with so much going into Productivity and Business Processes, Ader said the company might be making it more difficult for investors to understand the health of core commercial subscriptions for Office productivity software. A slowdown in growth is a "minor concern" among investors, Ader said. The More Personal Computing segment is picking up revenue from subscriptions to Copilot Pro, which brings generative artificial intelligence capabilities to Word, Excel and other applications for consumers. That revenue has shown up in Productivity and Business Processes since Copilot Pro's introduction earlier this year. As a result of the many adjustments, Microsoft now sees $27.75 billion to $28.05 billion in fiscal first-quarter revenue from the Productivity and Business Processes Segment, up from the range of $20.3 billion to $20.6 billion it provided in late July. The forecast calls for Intelligent Cloud revenue between $23.80 billion and $24.10 billion, down from $28.6 billion to $28.9 billion. And it shows More Personal Computing revenue in the range of $12.25 billion to $12.65 billion, compared with $14.9 billion to $15.3 billion before. But Microsoft continues to expect around $64.3 billion in revenue across the board. And it does not anticipate change to cost of revenue, operating expenses, other income and expense or tax rate.
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Microsoft announces changes to its financial reporting structure, emphasizing cloud consumption metrics and reorganizing key business segments. The move aims to provide investors with greater visibility into the company's cloud business performance.
Microsoft Corporation, the tech giant known for its software products and cloud services, has announced significant changes to its financial reporting structure. The move, set to take effect in the first quarter of fiscal year 2025, is designed to provide investors with enhanced visibility into the company's cloud business performance and consumption metrics 1.
The Redmond-based company is reorganizing its reporting segments to better reflect its strategic focus on cloud services. The new structure will consist of three primary segments:
This reorganization represents a shift from the current structure, which includes Productivity and Business Processes, Intelligent Cloud, and More Personal Computing 2.
A key aspect of this change is Microsoft's decision to highlight cloud consumption revenue as a separate line item. This move is aimed at providing investors with a clearer picture of the company's cloud business growth and performance. The tech giant plans to disclose both recognized revenue and remaining performance obligations for cloud services 1.
Microsoft has also updated its investor metrics for fiscal year 2025. The company now expects:
These projections reflect Microsoft's confidence in its continued growth and profitability, particularly in its cloud business 2.
The announcement has been met with positive reactions from industry analysts. Many view this change as a strategic move to showcase the strength of Microsoft's cloud business, particularly in light of increasing competition in the sector. The enhanced transparency is expected to allow investors to better assess Microsoft's performance against cloud-focused rivals like Amazon Web Services and Google Cloud 1.
As Microsoft continues to invest heavily in its cloud infrastructure and services, including artificial intelligence capabilities, these reporting changes are likely to provide valuable insights into the company's progress and market position. The tech industry will be watching closely to see how these new metrics influence investor perceptions and Microsoft's stock performance in the coming years 2.
Microsoft announces changes to its financial reporting structure, aiming to provide greater clarity on the impact of artificial intelligence across its business units. The tech giant's move reflects the growing importance of AI in its operations and strategy.
4 Sources
Microsoft's Azure cloud service experiences a growth deceleration, causing investor unease. The tech giant's AI investments and future outlook remain in focus as the company navigates changing market dynamics.
15 Sources
Analysts from BofA and Mizuho raise Microsoft's stock price targets, citing strong Azure performance and potential Copilot impact on Office suite. The company's stock sees positive movement amid these bullish forecasts.
4 Sources
Microsoft's Q4 2023 earnings report sparks debate on Wall Street. While AI investments remain strong, Azure's growth slowdown and high valuation raise concerns among investors and analysts.
12 Sources
Microsoft's stock receives a boost as analysts from Piper Sandler and Loop Capital raise price targets, citing strong growth potential in cloud services and AI. The tech giant's Azure platform and AI integration are key drivers for future revenue growth.
5 Sources