Release Date: January 29, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Microsoft Cloud revenue surpassed $40 billion for the first time, growing 21% year-over-year.
- AI business annual revenue run rate exceeded $13 billion, marking a 175% increase year-over-year.
- Strong commercial bookings growth of 67% and 75% in constant currency, driven by Azure commitments from OpenAI.
- Microsoft 365 Copilot saw significant adoption, with customers expanding their seats by more than 10x over the past 18 months.
- LinkedIn Premium surpassed $2 billion in annual revenue, with subscriber growth increasing nearly 50% over the past two years.
Negative Points
- Azure non-AI services growth was slightly lower than expected due to go-to-market execution challenges.
- On-premises server business revenue decreased 3%, slightly below expectations.
- Enterprise and partner services revenue decreased 1%, below expectations.
- Gaming revenue decreased 7% and 8% in constant currency, with hardware declines offsetting content and services growth.
- Free cash flow was down 29% year-over-year, reflecting higher capital expenditures.
Q & A Highlights
Q: Can you explain the execution issues with Azure and the outlook for the rest of the year?
A: Amy Hood, CFO, explained that the issues were primarily in the non-AI Azure component, particularly with scale motions involving indirect sales methods. Adjustments are being made to balance AI and non-AI workloads. Despite these challenges, AI results exceeded expectations, and confidence remains in AI growth, with capacity constraints expected to ease by year-end.
Q: What drove the larger-than-expected Microsoft AI revenue?
A: Amy Hood, CFO, highlighted that the outperformance was due to strong Azure AI results and better-than-expected Microsoft Copilot performance. This included growth in both new and expanded seats, increased usage, and favorable price per seat, indicating strong value perception.
Q: How is AI scaling impacting costs and efficiency?
A: Satya Nadella, CEO, noted that AI scaling laws and software optimizations are significantly improving efficiency, with inference computing costs decreasing. Innovations like DeepSeek contribute to these efficiencies, allowing AI to become more ubiquitous and beneficial for customers, ultimately driving more app development and consumption.
Q: What is the strategic decision behind the changes in the OpenAI relationship?
A: Satya Nadella, CEO, emphasized that Microsoft remains committed to OpenAI's success, benefiting from their Azure commitments. The focus is on building a fungible fleet that balances training and inference, optimizing for cost and efficiency, and continuously upgrading infrastructure to meet demand.
Q: How is the Copilot portfolio evolving to address customer needs?
A: Satya Nadella, CEO, discussed recent announcements like Copilot Chat and Copilot Studio, which enhance accessibility and functionality across the installed base. These developments, along with inference cost reductions, are expected to drive broader adoption and usage across Microsoft's portfolio.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
