Microsoft’s cloud revenues rule again in Q4, as Surface continues to dip

Microsoft just posted the fourth and final quarter of its 2024 fiscal financial results. The software maker made $64.7 billion in revenue and a net income of $22 billion during Q4. Revenue is up 15 percent, and net income has increased by 10 percent.

Microsoft’s Intelligent Cloud revenues, which include the company’s server products and cloud services, were $28.5 billion overall and up 19 percent year over year. Revenues from this part of Microsoft’s business now make up nearly 45 percent of all revenue. While cloud revenue is strong once again, Microsoft’s consumer devices push continues to dip. Xbox hardware revenue is down again, and Surface revenue has now declined for seven consecutive quarters in a row.

Windows OEM revenue, the price that manufacturers pay to license Windows for laptops and PCs, is up 4 percent year over year. Gartner said earlier this month that PC shipments had grown for three consecutive quarters, and that’s reflected in Microsoft’s Windows OEM growing in the same three quarters.

Microsoft also launched its new Copilot Plus PCs toward the end of fiscal Q4, with a variety of Qualcomm-powered devices available from June 18th onwards. Two new Surface devices, the Surface Laptop 7th Edition and Surface Pro 11th Edition, also launched in June. The full impact of sales on devices revenue won’t be felt until next quarter, though.

That means Surface revenue, or what Microsoft now calls devices revenue, has declined again this quarter by 11 percent. The last time Microsoft’s Surface revenue was up was in Q1 FY23, the quarter ended September 30th, 2022.

Microsoft switched up its hardware portfolio amid layoffs in early 2023, and the Surface Pro 10 and Surface Laptop 6 for businesses don’t seem to have had a big impact on revenues. All eyes are on next quarter to see if the new Surface Laptop and Surface Pro launches have helped devices revenue recover at all.

Xbox content and services revenue, which includes Xbox Game Pass, is up by 61 percent this quarter. Activision Blizzard revenues have once again contributed to the majority of revenue here, with 58 points of net impact. Without Activision Blizzard revenues, Xbox content and services revenue will still have been up 3 percent year over year.

Microsoft revealed in February that Xbox Game Pass has now grown to 34 million subscribers, including the Xbox Game Pass Core (previously Xbox Live Gold) members. Microsoft is planning to launch a new Xbox Game Pass Standard plan soon, which is designed to replace the Xbox Game Pass for Console offering for new subscribers.

Microsoft just launched last year’s Call of Duty: Modern Warfare III on Xbox Game Pass, and it’s also planning to make Call of Duty: Black Ops 6, the next installment in Activision’s popular franchise, available on Xbox Game Pass later this year. 

Microsoft’s price hikes for Xbox Game Pass Ultimate and PC Game Pass don’t come into effect until September, with Game Pass Ultimate increasing to $19.99 a month — a $3 increase over the current $16.99 a month pricing. PC Game Pass is also moving up to $11.99 a month in September.

While there’s a lot of anticipation for new games on Xbox Game Pass, console sales are still struggling. Xbox hardware revenue is down a massive 42 percent this quarter. Microsoft is planning to launch a discless Xbox Series X console in white later this year, alongside a new Galaxy Black special edition Xbox Series X.

Despite the poor Xbox hardware revenue, gaming revenue at Microsoft is up 44 percent overall, helped again by the additional Activision Blizzard revenue. In fact, that revenue added 48 points, so overall gaming revenue at Microsoft would have been down 4 percent if the company hadn’t acquired Activision Blizzard.

Microsoft’s cloud and Office revenues continue to grow, as expected. Office commercial products and cloud services revenue grew 12 percent, with Office 365 commercial revenue up 13 percent.

On the Office consumer side, revenue is up 3 percent year over year. Microsoft 365 Consumer subscribers also grew by 10 percent, up to 82.5 million now. LinkedIn revenue also grew 10 percent this quarter.

Server products and cloud services revenue jumped by 21 percent this quarter, with Azure and other cloud services revenue up by 29 percent. Investors continue to hunt down any signs of revenue growth in AI from Microsoft. This quarter, eight points of the Azure and other cloud services revenue growth is down to AI services, up slightly from the contribution in the previous quarter.

Microsoft is now planning to hold an investor call at 5:30PM ET / 2:30PM PT. We’ll update this article with comments from CEO Satya Nadella and CFO Amy Hood.