For Q1 2023, Microsoft reported $50.1 billion in revenue, up 11% y-o-y. Operating income was $21.5 billion, up 6% y-o-y, and Net income was $17.6 billion, down 14% compared to the previous year.
Note: Microsoft's FY'22 ended on June 30, 2022. Q1 FY'23 refers to the quarter that ended on September 30, 2022.
IT software and Services industries suffered from a fall in demand for software and web services at the start of the pandemic as consumers focused solely on essentials, not discretionary products. However, it recovered over the subsequent quarters, with companies having a portfolio of software and services aimed at remote collaboration benefitting the most. Notably, Microsoft witnessed an 18% jump in its revenues in FY2021 and FY2022. The growth is slowing down due to the tough macroeconomic scenario.
Microsoft announced a definitive agreement to acquire Metaswitch Networks to expand its approach to empower operators, partner with network equipment providers, and deliver on the promise of 5G. The acquisition builds on the company's recent acquisition of Affirmed Networks, which closed on April 23, 2020. The convergence of cloud and communication networks is expected to present a unique opportunity for Microsoft to serve operators globally via continued investment in Azure.
Below are key drivers of Microsoft's value that present opportunities for upside or downside to the current Trefis price estimate for Microsoft:
Microsoft makes money primarily through the sale of software server licenses, business productivity, and operating system software. Microsoft's business productivity software suite, MS Office, is used for word processing, spreadsheet preparation, presentations, and email. MS Office is sold primarily to businesses worldwide. Microsoft's operating system software, known as Windows, is sold primarily to PC manufacturers (such as Dell, HP, and Acer), which sell Windows-based PCs to consumers and businesses. Its Server software includes MS SQL and Windows servers sold to application development companies.
We believe Productivity services and Intelligent cloud are the most valuable segments of Microsoft for the following reasons:
Microsoft Office has a higher market share in the productivity market compared to the market share Windows OS has in the PC market. Even if users use Mac OS X over Windows OS for their personal computing needs, Microsoft's Office Suite is still one of the best available productivity suites on the platform. Even as more competition enters the productivity software industry, we still think that Office is substantially better than competing products.
Due to the increase in Internet penetration, and business activity on the Internet, big data analytics has come to the fore. As a result, the popularity of cloud services (IaaS, PaaS) and SQL servers is rising. Furthermore, Microsoft's Azure platform has increased sales of its virtualized version of its Windows server. Due to the covid pandemic, the work-from-home order has increased the company's cloud services demand.