Microsoft's perspective on 23rd fiscal year performance (Minutes of Conference Call)

Minutes Of Microsoft F4Q22 Performance Conference, See Details Of Financial Reports At《 Microsoft: Harder Confidence Under Software Paralysis

I. Business Dynamics

  1. In the next few years, the company will continue to increase the number of data centers and expand services in more than ten new regions.

  2. The usage of Cosmos DB in Q4 has increased by over 100% YoY.

  3. Power Platform currently has over 25 million monthly active users.

  4. The company is promoting the cloudification of Windows services through Azure Virtual Desktop and Windows 365. The monthly active usage of Azure Virtual Desktop has increased by nearly 60%.

  5. The revenue of LinkedIn Talent Solutions in the past 12 months has exceeded $6 billion, an increase of 39% YoY. The annualized revenue of LinkedIn Marketing Solutions has exceeded $5 billion.

II. Incremental Performance Information

  1. Due to the COVID-19 pandemic in China, Windows revenue decreased by RMB 300 million, and advertising revenue decreased by RMB 100 million.

  2. At the end of this quarter, the company's enterprise-end contract balance is USD 189 billion. 45%, or about USD 85 billion, will be recognized as revenue within the next 12 months, with a YoY growth of 28%. The remaining 104 billion will be recognized in one year or later, with a YoY growth of 39%.

  3. The gross profit margin for this quarter has slightly decreased to 68.3%, but the gross profit margin has actually improved slightly after excluding exchange rate effects.

III. FY23 Performance Guidance

  1. Starting from FY23, we will extend the depreciation period of servers and network equipment from 4 years to 6 years. Due to this accounting adjustment, it is expected that the operating profit of the 23 fiscal year will increase by USD 3.7 billion, and the Q1 of the 23 fiscal year will increase by USD 1.1 billion. (The above benefits are reflected in the guidance);

  2. Exchange rate impacts are expected to reduce revenue growth by 4% in the 23 fiscal year, with a greater impact in the first half of the year than in the second. Exchange rates will reduce operating costs by 2%;

  3. Excluding exchange rate impacts and the impact of changes in the depreciation period, the operating profit margin for the 23 fiscal year is expected to remain basically unchanged YoY;

  4. Due to the extension of the depreciation period, the gross profit margin of Microsoft Cloud will increase by 2%;

  5. It is expected that the growth rate of enterprise Office 365 business will decrease by 2% MoM (excluding exchange rate factors);

  6. The revenue of traditional enterprise Office suites is expected to decrease by around 35-40% YoY.

  7. Consumer Office revenue growth will be low single digits;

  8. LinkedIn revenue growth is around 10-15%;

  9. Dynamics revenue growth will be 15%-20%;

  10. Without considering the exchange rate impact, Azure revenue growth will decrease by 3% YoY;

  11. Traditional intelligence businesses (excluding Azure) will decline low single digits YoY;

  12. Other enterprise services businesses will grow at a low single-digit rate;

  13. Windows OEM revenue will decline high single digits YoY;

  14. Surface sales revenue will decline at a low single-digit rate;

  15. Search and advertising business (excluding buying costs) will grow 15%-20% YoY, about 10 percentage points higher than industry growth;

  16. Gaming business revenue will decline at low single-digit rate;

III. Q&A:

Q1: The company signed the largest-ever order this quarter. How did the company achieve this in the current macro environment?

A1: First of all, at the macro level, the IT spending as a percentage of GDP is increasing, and at the micro level, various enterprises are building digital technology platforms. Therefore, the long-term investment in IT is increasing.

Q2: What is the company's outlook on the macro environment? How to understand the company's guidance for expenses for fiscal year 2023?

A2: Firstly, with regard to the negative impact of the US dollar exchange rate, the headwind in the first half of fiscal year 2023 will be greater, but will ease in the second half.

In terms of operating costs, the company added 22% more employees this quarter, and it is expected to hire another 11,000 employees in the next quarter. Meanwhile, we are still integrating Nuance and Xandr, so there is still a considerable demand for manpower.

Q3: After the company launched the Office E5 product, has there been any changes in customers' preferences when choosing different Office products?

A3: From the perspective of user growth, the number of Microsoft 365 users increased by 14%, and the number of E5 users increased by 60%. The frequency of customers ordering E5 in their contracts is also increasing.

Q4: What is the company's view on future capital expenditures?

A4: The main reason for the increase in capital expenditures this quarter is the addition of new data centers and the expansion of existing ones. Currently, we still feel strong demand from customers, so capital expenditures in the next quarter will still be relatively high. However, capital expenditures will inevitably decrease in the future.

Q5: The company has mentioned many times that the demand for Office/cloud services from small and medium-sized enterprises is decreasing. How is the situation?

A5: We have found that except for E5, the amount of Office 365 purchased by small and medium-sized enterprises is declining and the demand is weak. Therefore, the company is adjusting its pricing to better meet the needs of small and medium-sized enterprise customers.

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