Microsoft's financial performance for the fourth quarter of its 2024 fiscal year showcased the company's strength in cloud services while highlighting continued struggles in its hardware divisions. The tech giant reported $64.7 billion in revenue and a net income of $22 billion for the quarter, marking a 15% increase in revenue and a 10% rise in net income year-over-year. Despite these gains, Microsoft's shares fell 5% in after-hours trading, reflecting investor concerns over slower-than-expected growth in key areas.
The standout performer was Microsoft's Intelligent Cloud division, which includes server products and cloud services. This segment generated $28.5 billion in revenue, up 19% from the previous year and now accounting for nearly 45% of the company's total revenue. Azure, Microsoft's flagship cloud platform, reported a 29% revenue increase. However, this fell slightly short of analysts' expectations, sparking concerns about the pace of growth in the cloud sector.
CEO Satya Nadella emphasized the company's role as a platform provider, stating, "Our strong performance this fiscal year speaks both to our innovation and to the trust customers continue to place in Microsoft. As a platform company, we are focused on meeting the mission-critical needs of our customers across our at-scale platforms today, while also ensuring we lead the AI era."
Despite robust cloud performance, Microsoft faced significant challenges in its hardware segments. Surface revenue declined for the seventh consecutive quarter, dropping by 11%. The new Surface Laptop and Surface Pro devices, launched in June, have yet to make a notable impact. Additionally, Xbox hardware revenue plummeted by 42%, though gaming revenue overall rose by 44%, bolstered by the integration of Activision Blizzard's revenues.
The company's Windows OEM revenue showed a modest increase of 4%, reflecting a broader recovery in PC shipments. Gartner reported that PC shipments had grown for three consecutive quarters, mirroring the growth in Microsoft's Windows OEM revenue over the same period. However, the gains in software and services could not fully offset the declines in hardware sales.
Microsoft's foray into bundled service packages for its high-end products represents a strategic pivot aimed at capturing more market share. Starting next month, the company will introduce four tiers of service: "Go Big," "Go Comfy," "Go Savvy," and "Go." These packages range from premium offerings with free Wi-Fi, snacks, and checked bags, to basic options that maintain the company's low-cost appeal.
The company's expansion into premium service packages reflects a broader industry trend. For example, Southwest Airlines recently announced plans to introduce "premium" seats with more legroom, while Frontier Airlines has begun offering blocked middle seats at a higher price. Spirit Airlines is also following suit with similar initiatives.
Microsoft's efforts to adapt to market demands extend to its gaming division. The company plans to launch a discless Xbox Series X console and a special edition Galaxy Black Xbox Series X later this year. Moreover, the upcoming inclusion of Call of Duty titles on Xbox Game Pass is expected to drive further engagement. The subscription service, which now boasts 34 million subscribers, will see price increases in September, with the Ultimate plan rising to $19.99 per month.
Despite the promising developments in cloud and gaming, the substantial investments in AI and data centers have yet to yield immediate returns. Microsoft's capital expenditure soared to $19 billion this quarter, a 77.6% increase from the previous three months. This spending is aimed at expanding its global network of data centers to meet anticipated demand for AI services.
LinkedIn revenue grew by 10%, and Office commercial products and cloud services saw a 12% increase, driven by a 13% rise in Office 365 commercial revenue. On the consumer side, Microsoft 365 subscribers grew by 10% to 82.5 million.