1

Introduction

Microsoft released an analysis of its financial condition and results of operations for the year ended June 30, 2022 compared to the previous year.

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2

Overview

Microsoft is a tech company that provides technology solutions for businesses, government, education, and health.

Microsoft generates revenue through cloud-based services, software licensing, device sales, and online advertising. In fiscal year 2022, Microsoft experienced significant revenue growth across various product lines and completed the acquisition of Nuance Communications, Inc. for $18.8 billion to strengthen its industry-specific cloud offerings.

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3

Industry Trends

Microsoft adapts to changes in the industry

Microsoft develops new ideas, products, and technologies

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4

Economic Conditions, Challenges & Risks

Microsoft must continuously adapt to changing customer preferences and invest in infrastructure, which could increase their operating costs and reduce operating margins.

Factors such as global economics and politics can impact demand for their products and services, making it important for Microsoft to remain agile in the market.

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5

Seasonality

Microsoft's revenue tends to be higher in Q2 and Q4.

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6

Reportable Segments

Microsoft reports financial performance in three segments

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7

Metrics

Metrics Introduction

Microsoft uses metrics to evaluate business performance, show progress, and inform resource allocation decisions.

In Q1 FY22, Microsoft updated certain metrics, including changes to revenue streams and alignment with business management, but these did not impact previously reported amounts in their MD&A. Microsoft also completed its acquisition of Nuance in Q3 FY22.

Commercial

Microsoft's commercial business encompasses a range of products and services.

Commercial metrics provide insight into the health of the commercial business, while the commercial remaining performance obligation and cloud revenue reflect unearned revenue and invoiced amounts that will be recognized in the future. Microsoft's Cloud business has a gross margin percentage that applies to its various commercial cloud properties.

Productivity & Business Processes and Intelligent Cloud

Microsoft uses metrics to assess the health of its main businesses.

The company's revenue growth primarily comes from their Office Commercial and Consumer products, as well as their cloud services.

Office 365 Commercial seat growth is the increase in users with paid subscriptions, while Microsoft 365 Consumer subscribers are counted at the end of each period.

Additionally, Microsoft's revenue growth includes income from their Dynamics products, cloud services, and LinkedIn's various solutions.

More Personal Computing

Microsoft uses metrics to evaluate performance of its commercial and consumer businesses.

Revenue growth for Windows OEM includes both Pro and non-Pro licenses sold through OEM channel, as well as income from Windows Commercial products and cloud services.

Revenue growth for Xbox content and services includes various revenue sources, and also comes from advertising in search and news.

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