Microsoft(MSFT) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Microsoft reported annual revenue of over $281 billion, up 15% year over year, with operating income exceeding $128 billion, an increase of 17% year over year [28][29] - For the fourth quarter, revenue was $76.4 billion, up 18% in constant currency, with earnings per share at $3.65, reflecting a 24% increase [29][30] - Commercial bookings surpassed $100 billion for the first time, increasing 37% in constant currency [29][30] - The commercial remaining performance obligation rose to $368 billion, up 37% in constant currency [30] Business Line Data and Key Metrics Changes - Microsoft Cloud revenue reached $46.7 billion, growing 27% in constant currency, with a gross margin percentage of 68% [31][32] - Productivity and Business Processes revenue was $33.1 billion, up 16% in constant currency, driven by M365 Commercial and Consumer Products [32][33] - Intelligent Cloud segment revenue was $29.9 billion, growing 26% in constant currency, primarily from Azure and on-premises server business [34] - More Personal Computing revenue was $13.5 billion, growing 9%, with Xbox content and services revenue increasing 13% in constant currency [36][37] Market Data and Key Metrics Changes - Azure surpassed $75 billion in annual revenue, up 34%, with significant growth across all workloads [6][7] - Microsoft Fabric revenue increased 55% year over year, with over 25,000 customers [11] - LinkedIn revenue grew 9%, with Talent Solutions impacted by hiring market weakness [33][25] - Xbox had 500 million monthly active users, with Game Pass annual revenue reaching nearly $5 billion for the first time [26][27] Company Strategy and Development Direction - Microsoft is focusing on building a comprehensive suite of AI products and tech stack at scale, with significant investments in AI infrastructure [6][10] - The company is expanding its data center capacity, with over 400 data centers across 70 regions, and is committed to maintaining leadership in the cloud infrastructure market [7][8] - Microsoft aims to enhance its commercial cloud offerings to meet unique data residency and sovereignty requirements, introducing the Microsoft Sovereign Cloud [9] - The company is also innovating in consumer applications, integrating AI features across its products, including Copilot in Microsoft 365 and Edge [22][23] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to drive long-term growth amid a generational tech shift with AI [27][51] - The outlook for FY 2026 includes expectations for double-digit revenue and operating income growth, with continued investments in capital expenditures and operating expenses [41][42] - Management highlighted the importance of maintaining operational agility and delivering revenue growth while managing costs effectively [42][51] Other Important Information - Microsoft launched over 100 new security capabilities over the past year, securing nearly 2 million general AI applications [24] - The company reported cash flow from operations of $42.6 billion, up 15%, and returned $9.4 billion to shareholders through dividends and share repurchases [39][40] Q&A Session Summary Question: Insights on Azure migration activity - Management noted that migrations, particularly large ones like Nestle's, are driving Azure growth, alongside the scaling of cloud-native applications and new AI workloads [74][76] Question: Surprises in quarterly performance - Management indicated that while there were no major surprises, the rapid development of stateful app patterns and the sophistication of application frameworks were notable [81][82] Question: Copilot's role in data importance - Management acknowledged that Copilot is just the starting point, with increasing importance placed on data and the development of asynchronous applications [88][90] Question: CapEx and Azure growth outlook - Management emphasized that CapEx is closely tied to the $368 billion contracted backlog, focusing on delivering capacity to meet demand [99][101] Question: Margin management amid AI offerings - Management highlighted that revenue growth and product innovation are key drivers of margin improvement, alongside efficiency gains from AI [108][110]