Microsoft has recently reported its financial results for the third quarter of its 2024 fiscal year, with revenue reaching $61.9 billion and net income totaling $21.9 billion. This marks a 17 percent increase in revenue and a 20 percent increase in net income. Gaming revenue has returned to fourth place behind Windows, after briefly becoming Microsoft’s third-largest business following the acquisition of Activision Blizzard. Despite strong performances in Office revenue and Microsoft Cloud revenue, overall gaming revenues were only up due to Activision Blizzard, with Xbox hardware revenue and devices revenue both declining.
Windows OEM revenue saw a surprising 11 percent year-over-year increase, surpassing Microsoft’s previous guidance of a relatively flat performance. This revenue increase is attributed to the licensing of Windows for laptops and PCs, which has been on the rise in 2024. Microsoft is set to launch “AI PCs” powered by Qualcomm’s latest Snapdragon chips, aiming to further boost Windows OEM revenues. Microsoft is expected to unveil new Surface devices running on Snapdragon X Elite and X Plus chips in May. Although devices revenue has been declining for over 12 months, Microsoft is hopeful for a turnaround with these new launches and leadership changes.
Microsoft is anticipating declines in devices revenue and low to mid single-digit growth in Windows OEM revenue for the fourth quarter. On the gaming side, Xbox content and services revenue showed a 62 percent increase, largely driven by Activision Blizzard revenues. Xbox hardware revenues, however, experienced a significant 31 percent drop this quarter, reflecting lower sales volume of consoles. Without Activision Blizzard, Microsoft’s gaming revenues would have declined in Q3. The acquisition of Activision Blizzard contributed $1.97 billion in revenue but also incurred integration and other costs, resulting in an operating loss of $350 million.
Microsoft’s Office and cloud businesses continue to perform well, with Office commercial products and cloud services revenue increasing 13 percent year over year. Office consumer revenue is also up by 4 percent, with Microsoft 365 consumer subscribers reaching 80.8 million. The company’s cloud revenue reached $35.1 billion, up 23 percent year over year, driven by strong execution and partnerships. Azure and other cloud services saw a 31 percent growth, with AI services contributing seven points to this revenue growth. Microsoft’s focus on security was underscored by CEO Satya Nadella, emphasizing its priority above all other features and investments.
Looking ahead, Microsoft is expecting declines in Xbox hardware revenues and low to mid 40 percent growth in overall gaming revenue for the next quarter. Activision Blizzard is expected to continue making a significant impact on gaming revenue, with Xbox content and services revenue projected to increase in the high 50 percent region. The company’s financial performance reflects the ongoing impact of strategic acquisitions, investments in new technologies, and shifts in market dynamics. Microsoft’s continued focus on cloud services, AI, and security highlights its commitment to innovation and growth in a rapidly evolving industry.