Microsoft crushes expectations with EPS of $0.78 on revenue of $24.52 billion

Microsoft on Thursday posted an EPS of $0.78 on revenue of $24.52 billion for its second fiscal quarter of 2014, thus crushing the consensus forecast of an EPS of $0.68 on revenue of $23.68 billion. The most interesting aspect of Thursday’s report was the $893 million in revenue Microsoft posted from sales of its Surface tablet, which more than doubled the $400 million in Surface revenue the company posted in fiscal Q1 2014. Microsoft also said that it shipped 3.9 million Xbox One consoles and 3.5 million Xbox 360 consoles. Of the 3.9 million Xbox Ones shipped, around 3 million were bought by consumers while 900,000 remained in inventory.

The past few months have been very busy for Microsoft, which launched its Surface 2 and Surface Pro 2 tablets in September and its Xbox One gaming console in November. The company is in the midst of a major transition as it’s still looking for a new CEO to replace the outgoing Steve Ballmer, who has started taking the company in a new direction with his “One Microsoft” initiative.

The company’s press release follows below.

Microsoft Reports Record Revenue of $24.52 Billion in Second Quarter

Double-digit growth in Commercial and Devices and Consumer segments drives record revenue.

REDMOND, Wash. — January 23, 2014 — Microsoft Corp. today announced revenue of $24.52 billion for the quarter ended December 31, 2013. Gross margin, operating income, net income, and diluted earnings per share for the quarter were $16.24 billion, $7.97 billion, $6.56 billion, and $0.78 per share, respectively.

The following table reconciles these financial results reported in accordance with generally accepted accounting principles (“GAAP”) to non-GAAP financial results. We have provided this non-GAAP financial information to aid investors in better understanding the company’s performance.

Three Months Ended December 31,
($ in millions, except per share amounts) 2012 As Reported (GAAP) Revenue deferred for Windows Upgrade Offer, Office Deferral, and Video Game Deferral Revenue recognized for Windows 8 Pre-sales 2012 As Adjusted (Non-GAAP) 2013 As Reported (GAAP) %Y/Y (GAAP) %Y/Y (Non-GAAP)
Revenue $21,456 $1,329 ($783) $22,002 $24,519 14% 11%
Operating Income $7,771 $1,329 ($783) $8,317 $7,969 3% (4)%
EPS $0.76 $0.13 ($0.08) $0.81 $0.78 3% (4)%

“Our Commercial segment continues to outpace the overall market, and our Devices and Consumer segment had a great holiday quarter,” said Steve Ballmer, chief executive officer at Microsoft. “The investments we are making in devices and services that deliver high-value experiences to our customers, and the work we are doing with our partners, are driving strong results and positioning us well for long-term growth.”

“We delivered record revenue as demand for our business offerings remains high and we made strong progress in our Devices and Consumer segment,” said Amy Hood, chief financial officer at Microsoft. “These results reflect our focus on execution, cost discipline, and long-term shareholder value as we continue to drive the strategic transformation of the company.”

Devices and Consumer revenue grew 13% to $11.91 billion.

  • Windows OEM revenue declined 3%, reflecting strong 12% growth in Windows OEM Pro revenue, offset by continued softness in the consumer PC market.
  • Surface revenue more than doubled sequentially, from $400 million in the first quarter to $893 million in the second quarter.
  • The company sold 7.4 million Xbox console units into the retail channel, including 3.9 million Xbox One consoles and 3.5 million Xbox 360 consoles.
  • Bing search share grew to 18.2% and search advertising revenue grew 34%.

Commercial revenue grew 10% to $12.67 billion.

  • SQL Server continued to gain market share with revenue growing double-digits.
  • System Center showed continued strength with double-digit revenue growth.
  • Commercial cloud services revenue more than doubled.
  • Office 365 commercial seats and Azure customers both grew triple-digits.

“We significantly outpaced enterprise IT spend as we continue to take share from our competitors by delivering the devices and services our customers need as they transition to the cloud,” said Kevin Turner, chief operating officer at Microsoft. “Our commercial cloud services revenue grew more than 100% year-over-year, as customers are embracing Office 365, Azure, and Dyn.”