Microsoft just released the third quarter of its fiscal 2024 financial results. The software maker posted third-quarter revenue of $61.9 billion and net income of $21.9 billion. Sales rose 17 percent and net profit increased 20 percent.
This is the second quarter in a row that Microsoft has included the additional revenue from its Activision Blizzard acquisition, which has resulted in gaming becoming Microsoft’s third-largest business after Windows.
Investors are also expecting signs of revenue from Microsoft’s big AI investments over the past year, particularly on the Azure OpenAI side, where the company charges companies to perform AI tasks in the cloud. This quarter, Office and cloud revenue continues to reign supreme at Microsoft, with Microsoft cloud revenue increasing 23 percent year-over-year.
This quarter, Windows OEM sales increased 11 percent year-over-year. This is the price PC makers pay to license Windows for laptops and PCs, and while it has suffered throughout 2023, it is rising again throughout 2024. Microsoft now hopes to boost its Windows OEM sales over the summer with the launch of what it calls “AI PCs” powered by Qualcomm’s latest Snapdragon chips.
We expect Microsoft to unveil its own Surface devices with Snapdragon X Elite and X Plus chips on May 20 at a special AI and Surface event. These new chips could mark the biggest CPU shift since Apple Silicon if they’re able to deliver the performance and battery life promised by Qualcomm.
Microsoft will rely on this initiative, particularly on the Surface side. Device sales fell again by a massive 17 percent in the third quarter. Device sales have been declining for more than 12 months, despite new Surface devices coming to market and Microsoft shuffling its hardware portfolio due to layoffs. After Panos Panay’s surprising departure to Amazon last year, Microsoft now has a new Windows and Surface boss. Pavan Davuluri recently took over Windows after taking over Surface devices last year. Last year, Microsoft split the Windows and Surface groups under two different leaders, but now they’re back under a single leader.
On the Xbox and gaming side, revenue from Xbox content and services, which includes Xbox Game Pass, increased 62 percent. Again, this is thanks to Activision Blizzard’s revenue, making it harder to estimate how Xbox performed without this addition.
Microsoft announced in February that Xbox Game Pass had now grown to 34 million subscribers, including Xbox Game Pass Core (formerly Xbox Live Gold) members. Four previously Xbox-exclusive games are now available on PS5, with some also available on Nintendo Switch.
This strategic shift is limited to these games for now, but appears to be a response to a slowdown in Xbox Game Pass growth and Xbox console sales. This quarter, Xbox hardware fell a massive 31 percent, a big drop after a weak quarter for Xbox sales during the key holiday season last year.
Total gaming revenue increased 51 percent, supported by additional revenue from Activision Blizzard.