4Q23 meet expectations, AI revenue in 2H24F
- 4Q23 normalised operating income of US$23.5bn (+14% y-o-y) was inline with street estimates.
- AI related revenue will be more visible in 2H24F as Copilots reach general availability dates
- Guides 1Q24F revenue growth of 8.3% y-o-y, inline with street estimates.
4Q23 normalised operating income of US$23.5bn (+14% y-o-y) was inline with street estimates. Microsoft Corporation (MSFT) reported normalized operating income (excluding the increase of US$804m due to change in estimate for useful life of server and network equipment) of US$23.5bn (+14% y-o-y) in 4Q23, inline with street estimates. 4Q23 normalised net income of US$19.4bn (+16% y-o-y) excluding the increase of US$653m due to change in accounting estimate was also inline with street estimates. 4Q23 revenue of US$56.2bn (+8.3% y-o-y) was inline with street estimates of US$55.5bn. Intelligent Cloud business segment, generated US$24.0bn in 4Q23 (+15% y-o-y) driven by Azure. Azure revenue grew 26% y-o-y in 4Q23 compared to 27% y-o-y in 3Q23. The Productivity and Business Processes revenue rose 10% y-o-y to US$18.3bn driven by Office 365, where growth in revenue per user helped MSFT to achieve 15% more revenue from commercial Office 365 productivity software subscriptions. Personal computing (PC) segment reported US$13.9bn (-3.8% y-o-y) revenue in 4Q23 due to fall in sales of windows OS licenses to device makers. Gartner estimated that PC shipments declined 17% y-o-y in June quarter vs 30% y-o-y drop in March quarter.
1Q24F revenue guidance is inline with street, implies an 8.3% y-o-y growth. MSFT expects US$53.8bn-US$54.8bn in revenue for 1Q24F, inline with street estimate of US$54.9bn. MSFT’s implied operating margin for 1Q24F would be around 44.3%, higher than street’s 43.8%. MSFT has given outlook for the three segments, where at the mid-range Intelligent Cloud/Productivity and Business Segment is expected to grow 5%/10% y-o-y, while PC segment is expected to decline by 5% y-o-y. Management indicated that Azure revenue growth for 1Q24F to be 25% to 26% in constant currency similar to 4Q23 growth including roughly 2 percent points from all Azure AI services. AI related revenue will be more visible in 2H24. Growth from AI services will be gradual as Copilots reach general availability dates. MSFT’s Azure OpenAI Service now has over 11,000 customers, up from over 4,500 in May 2023. MSFT noted that the returns from the investments in AI in the form higher revenue will be in 2H24F rather than 1H24F. MSFT has not confirmed when the Copilot assistant for its Microsoft 365 productivity applications will become available for customers. Those capabilities will cost US$30 per person per month in addition to existing subscriptions to Microsoft 365. That’s a big premium over the cost of the existing Microsoft 365 plans right now. Microsoft charges US$36 per user per month for Microsoft 365 E3 and US$12.5 for Business Standard.
