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Microsoft MSFT reported fourth-quarter fiscal 2025 earnings of $3.95 per share, which beat the Zacks Consensus Estimate by 8.96% and increased 23.7% on a year-over-year basis.
Revenues of $76.44 billion increased 18.1% year over year and beat the Zacks Consensus Estimate by 3.7%. At constant currency (cc), revenues grew 17% year over year, showcasing strong demand for cloud and AI offerings.
The stock, which is trading near a record, jumped 9% and surpassed the $550 mark in extended trading on accelerating growth in its Azure cloud infrastructure unit.
For the first time, commercial bookings were more than $100 billion, which increased 37% (up 30% in cc) on a strong prior year comparable. Strong execution across core annuity sales motions, including healthy renewals, as well as an increase in the number of 10-million and 100-million-dollar-plus contracts for both Azure and Microsoft 365, helped drive these results.
Commercial remaining performance obligation increased to $368 billion, which increased 37% (up 35% in cc). Roughly 35% will be recognized in revenues in the next 12 months, up 21% year over year. The remaining portion, recognized beyond the next 12 months, increased 49%. In the reported quarter, the annuity mix was 98%.
FX was roughly in line with expectations on total company revenues, segment level revenues, COGS and operating expense growth.
Microsoft Cloud revenues were $46.7 billion, ahead of expectations, and grew 27% (up 25% in cc). Microsoft Cloud’s gross margin percentage was slightly better than expected at 68%, down 2 points year over year from the impact of scaling our AI infrastructure, partially offset by continued efficiency gains in Azure and M365 commercial cloud.
Microsoft Corporation price-consensus-eps-surprise-chart | Microsoft Corporation Quote
The Productivity & Business Processes segment, which includes the Office and Dynamics CRM businesses, contributed 43.3% to total revenues. Revenues increased 16% (up 14% at cc) on a year-over-year basis to $33.1 billion, which came ahead of expectations, driven by M365 commercial products and cloud services and M365 consumer products and cloud services.
M365 commercial cloud revenues increased 18% (up 16% in cc), ahead of expectations. Business trends remained relatively stable to the prior quarter when excluding the in-period revenue recognition, with ARPU growth again driven by E5 and M365 Copilot.
Paid M365 commercial seats grew 6% year over year with installed base expansion across all customer segments, though primarily in the small and medium business and frontline worker offerings.
M365 commercial products revenues increased 9% (up 7% in cc), ahead of expectations due to higher-than-expected Office 2024 transactional purchasing.
M365 consumer cloud revenues were better than expected, up 20% driven by ARPU growth following the January price increase and subscriber growth of 8%.
LinkedIn revenues increased 9% (up 8% in cc), with growth across all businesses, though Talent Solutions continues to be impacted by weakness in the hiring market.
Dynamics 365 revenues jumped 23% (up 21% in cc), with strong execution in core annuity sales motions leading to growth across all workloads.
Segment gross margin dollars increased 16% (up 15% in cc), and gross margin percentage increased slightly, driven by the efficiency gains noted earlier, even as we deliver more AI features across our products and scale our AI infrastructure. Operating expenses rose 7% (up 6% in cc) and operating income grew 21% (up 19% in cc).
The Intelligent Cloud segment, including server and enterprise products and services, contributed 39.1% to total revenues. The segment reported revenues of $29.9 billion and grew 26% (up 25% in cc), ahead of expectations, driven by Azure and on-premises server business.
Server products and cloud services revenues climbed 27%. In Azure and other cloud services, revenues grew 39% (up 35% in cc), significantly ahead of expectations, driven by accelerated growth in core infrastructure business primarily from the company’s largest customers. Revenues from Azure AI services were generally in line with expectations.
In the on-premises server business, revenues decreased 2% (down 3% in cc), ahead of expectations, primarily driven by transactional purchasing, which also has higher in-period revenue recognition.
Enterprise and partner services revenues grew 7% (up 6% in cc), with growth in Enterprise Support Services, partially offset by a decline in Industry Solutions.
Segment gross margin dollars increased 17% (up 16% in cc), while gross margin percentage decreased 4 points year over year, primarily due to scaling the company’s AI infrastructure, partially offset by Azure efficiency gains. Operating expenses rose 6% (up % in cc) and operating income grew 23%.
More Personal Computing segment, which primarily comprises Windows, Gaming, Devices and Search businesses, contributed 17.6% to total revenues. Revenues were $13.5 billion, which grew 9% (up 7% in cc), exceeding expectations primarily due to Windows OEM as well as Xbox content and services.
Windows OEM and Devices revenues increased 3% year over year, ahead of expectations, as inventory levels remained elevated.
Search and news advertising revenue ex-TAC increased 21% (up 20% in cc), driven by continued growth in both volume and revenue per search, as well as roughly 8 points of favorable impact from third-party partnerships, including the benefit of a low prior-year comparable.
In Gaming, revenues increased 10%. Xbox content and services revenues rose 13% (up 12% in cc), driven by better-than-expected performance from first-party content and Xbox Game Pass.
The company reported 500 million monthly active users across gaming platforms and devices. Microsoft became the top publisher on both Xbox and PlayStation in the reported quarter, with the successful launches of Forza Horizon 5 and Oblivion Remastered.
The Call of Duty franchise gained strength with 50 million people having played Black Ops 6. Total hours surpassed 2 billion.
Minecraft saw record monthly active usage and revenues in the reported quarter, thanks in large part to the success of the Minecraft movie. Microsoft has 40 games in development.
Microsoft surpassed more than 500 million hours of game play streamed via the cloud this year. Game Pass annual revenues were nearly $5 billion for the first time.
Segment gross margin dollars increased 15%. Gross margin percentage increased 3 points year over year, with improvement across all businesses.
Operating expenses increased 4% (up 3% in cc). Operating income rose 34% (up 33% in cc), driven by continued prioritization of higher margin opportunities.
Microsoft delivered exceptional growth across its Azure, AI, and Copilot platforms during the fourth quarter of fiscal 2025, demonstrating the company's leadership in the AI transformation. Azure achieved remarkable scale, surpassing $75 billion in annual revenues with 34% growth, while expanding its global infrastructure to more than 400 datacenters across 70 regions. The company added more than two gigawatts of new capacity and made every Azure region AI-first, with all locations now supporting liquid cooling for enhanced performance and flexibility.
The AI infrastructure developments proved particularly impressive, with Microsoft optimizing its GPT-4o family of models to deliver 90% more tokens per GPU compared to the previous year through software improvements alone. The company launched Azure AI Foundry as a comprehensive platform for designing and managing AI applications and agents, featuring advanced tooling, observability, and trustworthy AI controls. Foundry now supports models from multiple providers, including OpenAI, DeepSeek, Meta Platforms META and others, with 80% of Fortune 500 companies already adopting the platform. The service processed over 500 trillion tokens during the year, representing a seven-fold increase, while the Foundry Agent Service gained traction with 14,000 customers building automated solutions.
Copilot applications achieved significant milestones, surpassing 100 million monthly active users across commercial and consumer segments. When including all AI features across Microsoft's product portfolio, the user base reaches more than 800 million monthly active users. Microsoft 365 Copilot received its largest update, integrating chat, search, creation tools, notebooks, and agents into a unified experience. Enterprise adoption accelerated substantially, with major organizations like Barclays expanding deployments to 100,000 employees and companies, such as Adobe ADBE, KPMG, and Pfizer PFE, purchasing more than 25,000 seats each. The platform introduced sophisticated reasoning agents for research and analysis, while GitHub Copilot grew to 20 million users with 90% of Fortune 100 companies utilizing the service.
Microsoft also unveiled innovative features, including group-level agents in Teams for real-time translation and meeting facilitation, while customers created 3 million custom agents using SharePoint and Copilot Studio. The introduction of Copilot Mode in the Edge browser and breakthrough quantum computing developments with Atom Computing further demonstrated Microsoft's commitment to comprehensive AI innovation across its entire technology stack.
Microsoft Fabric emerged as a standout performer, positioning itself as the complete data and analytics platform for the AI era. The platform spans everything from SQL to NoSQL to analytics workloads and has demonstrated exceptional growth with revenues increasing 55% year over year while serving more than 25,000 customers. Microsoft noted that Fabric is now its fastest-growing database product in company history. The platform's Fabric OneLake capability spans all databases and clouds, including semantic models from Power BI, making it what Microsoft describes as the best source of knowledge and grounding for AI applications and context engineering.
The company also announced the launch of Azure AI Foundry during the fiscal year, designed to help customers design, customize, and manage AI applications and agents at scale. This platform features best-in-class tooling, management, observability, and built-in controls for trustworthy AI, supporting multiple AI models from various providers, including OpenAI, DeepSeek, Meta, and others.
Database services showed strong momentum, with Azure Databricks and Snowflake on Azure both experiencing acceleration. Cosmos DB and Azure PostgreSQL are powering mission-critical workloads at scale, with notable examples including OpenAI using Cosmos DB for every ChatGPT interaction to store chat history, user profiles, and conversational state, while Azure PostgreSQL handles metadata critical to ChatGPT and OpenAI's developer APIs.
Additionally, Microsoft introduced the Microsoft Sovereign Cloud this quarter, described as the industry's most comprehensive solution spanning both public and private cloud deployments, addressing customers' unique data residency and sovereignty requirements. The company also enhanced its security offerings by adding a modern data lake to Microsoft Sentinel, integrating customer data across first-party tools and over 350 third-party connectors.
Gross profit increased 16.4% year over year to $52.4 billion. The gross margin was 69%, down 1 point year over year due to sales mix shift to Azure and the lower Microsoft Cloud gross margin noted earlier.
Operating expenses increased 6% (up 5% in cc) and operating margins increased 2 points year over year to 45%. Better-than-expected revenue growth, coupled with a focus on operating efficiently, drove the margin expansion.
Operating income was $34.3 billion and increased 22.9%. The operating margin expanded 180 bps to 44.9% on a year-over-year basis.
Productivity & Business Process operating income rose 20.9% to $18.99 billion. Intelligent Cloud operating income increased 23.4% to $12.1 billion. More Personal Computing’s operating income increased 33.8% to $3.19 billion.
As of June 30, 2025, Microsoft had a total cash, cash equivalents and short-term investments balance of $94.56 billion compared with $79.61 billion as of March 31, 2025.
As of June 30, 2025, long-term debt (including the current portion) was $43.15 billion compared with $39.88 billion as of March 31, 2025.
Cash flow from operations was $42.6 billion, up 15% driven by strong cloud billings and collections, partially offset by higher supplier payments. Free cash flow was $25.6 billion.
Other income and expense was negative $1.7 billion, primarily due to losses on investments accounted for under the equity method.
Microsoft returned $9.4 billion to shareholders through dividends and share repurchases, bringing our total cash returned to shareholders to over $37 billion for the full fiscal year.
For the fiscal first quarter 2026, Microsoft expects the cost of revenues between $24.3 billion and $24.5 billion and operating expenses to grow in the $15.7-$15.8 billion range. Other income and expenses are expected to be roughly $(1.3) billion.
The company expects revenue growth in the productivity and business processes segment between $32.2 billion and $32.5 billion.
MSFT expects Office 365 Commercial revenue growth to be roughly 13-14% at cc. Office Commercial products revenues are expected to grow in mid-to-high single digits.
In Office Consumer products and cloud services, Microsoft expects revenue growth in low-twenties. For LinkedIn, the company expects revenue growth in high-single digits. In Dynamics, MSFT expects revenue growth in the high-teens range.
For Intelligent Cloud, Microsoft anticipates revenues between $30.1 billion and $30.4 billion.
In Azure, this Zacks Rank #2 (Buy) company expects revenue growth of 37% at cc. The company expects Server product revenues to decline in low-to-mid single digits. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
For More Personal Computing, the company projects revenues between $12.4 billion and $12.9 billion. It expects Windows OEM revenues to decline in mid-to-high single digits.
In Gaming, the company expects revenues to decline mid-to-high single digits. Microsoft expects Xbox content and services revenues to decline in mid-single digits.
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This article originally published on Zacks Investment Research (zacks.com).
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