Xbox and cloud help boost Microsoft’s Q1 2024 earnings

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The PC market is still impacting Windows and Surface devices, but Xbox and cloud are doing well.

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Illustration of Microsoft’s Windows logo

Illustration by Alex Castro / The Verge

Microsoft just posted the first quarter of its 2024 fiscal financial results. The software maker made $56.5 billion in revenue and a net income of $22.3 billion during Q1. Revenue is up 13 percent, and net income has increased by 27 percent. Devices revenue has been hit hard again this quarter, even if Windows has recovered slightly. The star of Microsoft’s earnings are cloud services and Office, though.

Windows OEM revenue, the price that PC manufacturers pay Microsoft to put Windows on laptops and PCs, is up 4 percent this quarter. It’s a surprise increase, given we’ve seen a general weakness in PC sales over the past year, with Windows OEM revenue suffering throughout Microsoft’s entire 2023 fiscal year.

The Surface Laptop Studio 2 in tent mode, displaying Windows 11.

The Surface Laptop Studio 2 in tent mode, displaying Windows 11.
The Surface Laptop Studio 2.
Photo by Amelia Holowaty Krales / The Verge

While Windows is bouncing back, Microsoft’s hardware revenues aren’t. Lower shipments of laptops have impacted devices revenue once again, which includes HoloLens, PC accessories, and Surface devices. Overall devices revenue has dropped by 22 percent in Q1. Microsoft has launched its new Surface Laptop Studio 2, Surface Laptop Go 3, and even a refreshed Surface Go 4 earlier this month, but we won’t see most of the impact of these launches on devices revenue until Q2.

Microsoft is now expecting to see devices revenue decline against next quarter in the mid-teens. That’s despite Microsoft CEO Satya Nadella revealing on the company’s earnings call that “PC market unit volumes were at roughly pre-pandemic levels” this quarter.

Windows OEM revenue is expected to grow in mid to high single digits next quarter, according to CFO Amy Hood. That could be thanks to larger Windows 11 deployments that Nadella referenced on the call.

Xbox Series X and S consoles sit side by side on a wooden table in a living room

Xbox Series X and S consoles sit side by side on a wooden table in a living room
The Xbox Series S and X.
Photo by Tom Warren / The Verge

Over on the Xbox side, Xbox hardware revenue has declined 7 percent. Microsoft launched a 1TB black version of its Xbox Series S last month, just in time for Bethesda’s new Starfield game, but it wasn’t enough to boost Xbox hardware revenues.

Xbox content and services revenue, which includes Xbox Game Pass, is up by 13 percent, though. Overall gaming revenue is also up 9 percent. It looks like Xbox Game Pass has grown year over year, but Microsoft is still not providing updated subscriber numbers.

Microsoft said Xbox Game Pass had grown to 25 million subscribers in January 2022, but we haven’t had an update for more than 18 months now — even as Starfield, Forza Motorsport, and plenty of other games have contributed to Game Pass this year.

Nadella did reveal on the company’s earnings call that Starfield has contributed to Xbox Game Pass growth, though. “On launch, we set a record for the most Game Pass subscriptions added on a single day ever,” he said.

Microsoft Gaming CEO Phil Spencer did admit in October that Xbox Game Pass growth had stalled on the console side of the service, with Microsoft now focused on PC Game Pass growth instead.

Microsoft also closed its Activision Blizzard acquisition earlier this month, with plans to announce which games are coming to Xbox Game Pass in the coming months. Microsoft is also holding an Xbox Partner Preview event tomorrow, with the company planning to show off a launch trailer for Alan Wake 2 and the first gameplay for Ark: Survival Ascended.

Multinational companies sign and logos in Warsaw, Poland

Multinational companies sign and logos in Warsaw, Poland
Microsoft’s cloud services helped with revenue again in Q1 2024.
Photo by Aleksander Kalka / NurPhoto via Getty Images

As always, it’s Microsoft’s cloud, server, and Office businesses that are driving most of the revenue growth at the company. Microsoft 365 Consumer subscribers have grown a massive 18 percent year over year, up to 76.7 million. Microsoft launched a new $1.99 a month Microsoft 365 Basic subscription earlier this year, which has clearly helped boost the numbers.

Office commercial products and cloud services revenue also grew by 15 percent year over year thanks to Office 365 Commercial revenue growth of 18 percent. Microsoft continues to convert businesses to cloud-powered versions of Office, with the Microsoft 365 Copilot launch on November 1st expected to renew interest, too.

Microsoft Teams stock

Microsoft Teams stock
Microsoft Teams is still growing.
Image: Microsoft

Microsoft Teams also continues to grow. Teams now has more than 320 million monthly active users, and more than 10,000 paid customers are now using Microsoft Teams Premium, according to Nadella.

Microsoft’s intelligent cloud business generated $24.3 billion in revenue this quarter, a 19 percent year-over-year increase. Azure and other cloud services revenue grew by 29 percent. Nadella revealed last quarter that Microsoft Cloud sales passed $110 billion in the 2023 fiscal year, with Azure making up more than 50 percent of this revenue for the first time.

We’re now waiting to see the impact of Microsoft’s potential AI revenues after the company unveiled its steep Microsoft 365 Copilot pricing earlier this year. Microsoft 365 Copilot launches on November 1st, so we’ll hopefully start to see its impact on revenues over the next few quarters.

We’ll also see the impact of Microsoft’s giant Activision Blizzard acquisition over the coming quarters, with Hood revealing bigger gaming revenues and Xbox content revenues thanks to the deal.

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