Microsoft Posts Strong Cloud Growth as It Overhauls Financial Reporting

Microsoft has reported results for the first quarter of its 2027 fiscal year, posting $92.3 billion in revenue and $33.6 billion in net income. Revenue rose 19 percent from a year earlier, while net income climbed 32 percent.

The company also changed how it reports its business. Starting with the new fiscal year, Microsoft is dividing its operations into two segments for the first time, replacing the earlier structure of Productivity and Business Processes, Intelligent Cloud, and More Personal Computing. The new segments are Agents and Infra, and Devices and Consumer.

Agents and Infra covers Azure, Microsoft 365 commercial and consumer, and server products. It generated $76.8 billion, or 83 percent of total revenue, and grew 25 percent year over year. Under the new approach, Microsoft will disclose Azure revenue every quarter. Azure brought in $33.17 billion this quarter, up 48 percent from a year ago.

Devices and Consumer, which includes Windows, Xbox, Surface, and the search and advertising businesses, accounted for the remaining 17 percent, or $15.5 billion. That figure represents a 3 percent decline.

Windows OEM and devices revenue fell 22 percent year over year. The PC market overall dropped 20 percent in the recent quarter amid a memory shortage that has been nicknamed RAMageddon. Microsoft attributed its decline to the boost it received in the prior year from the end of Windows 10 support, along with OEM inventory drawdowns and a weaker PC market. The company launched Intel- and Qualcomm-powered Surface Pro 12 and Surface Laptop 8 devices shortly before the fiscal year began, and refreshed its smaller Surface Pro and Surface Laptop with Qualcomm X2 Plus chips during the quarter. Surface prices are higher than ever because of the memory crunch, and the PC market appears set for a difficult stretch.

Xbox also lost ground. Hardware revenue was down 14 percent, and content and services, which includes Game Pass, slipped 2 percent. Microsoft has still not updated Game Pass subscriber numbers since it last reported 34 million subscribers more than two years ago.

The quarter for Xbox was dominated by a reset that included thousands of layoffs and the spinning off of studios. Rumors suggest more job cuts could come in November and January. In a memo earlier this year, Xbox CEO Asha Sharma said "we will return Xbox to player and revenue growth" by the end of fiscal year 2027, which runs through next June. She said the goal is to "scale what works" so that by fiscal year 2030 Xbox is "halfway to our long-term daily-player goal with sustained double-digit growth in players and engagement and industry leading margins."

Cloud remained the main driver of results. Microsoft Cloud revenue reached $63.9 billion, almost 70 percent of the total, and rose 30 percent year over year on strong demand for Azure and Microsoft 365 commercial cloud.

Microsoft 365 commercial cloud revenue grew 18 percent, helped by higher revenue per user and upselling of premium options such as Microsoft 365 Copilot, E5, and E7. Microsoft 365 consumer cloud revenue increased 17 percent, driven by revenue per user growth and a 7 percent rise in subscribers. The company was scheduled to hold an earnings call at 2:30PM PT / 5:30PM ET.