Q4 FY2024 Earnings Call
MSFT · Preprocessing Report
2024-07-30
Quality
100%
51
Turns
12
Speakers
5
Sections
8
Exchanges
555
Claims

Entities by group 116

company executives 1
Amy Hoodperson
sell-side analysts 5
Karl KeirsteadpersonKeith WeisspersonMark MoerdlerpersonKash RanganpersonKeith Bachmanperson
gaming platform 1
Xboxproduct
operating system 1
Windowsproduct
foundation model tech 4
GenAItechnologyAzure OpenAI ServicetechnologyGPT-4otechnologyPhi-3technology
enterprise business applications 1
Dynamics 365product
copilot enabled hardware 1
Copilot+ PCsproduct
ai copilots 1
Copilot Studioproduct
copilot industry solutions 1
DAX Copilotproduct
analysts 2
Brent ThillpersonBrad Zelnickperson
low-code development 1
Power Platformproduct
security program 1
Secure Future Initiativetechnology
vmware migration 1
Azure VMware Solutionproduct
copilot developer productivity 1
Copilot Workspaceproduct
AI meeting assistant 1
Team Copilotproduct
ad optimization 1
Performance Maxproduct
cloud platform 1
Commercial Cloudtechnology
Ungrouped 91
MicrosoftcompanySatya NadellapersonActivisioncompanyGitHubcompanyLinkedInproductOraclecompanyBingproductIPotherFalloutproductCobalt 100productSAPcompanyCoherecompanyAmazon PrimeproductAdvanced Micro Devices (AMD)companyNVIDIAcompanyMaiaproductElasticcompanyMongoDBcompanySiemenscompanySnowflakecompanyTeradatacompanyArcproductAtoscompanyColescompanyDaimler TruckcompanyDomino'scompanyHaleoncompanyVMwarecompanyH&R BlockcompanySuzukicompanySwiss RecompanyTelstracompanyFreshworkscompanyMeeshocompanyZomatocompanyBlackRockcompanyEmiratescompanyEpiccompanyNavy Federal Credit UnioncompanyMetacompanyMistralcompanyAdobecompanyBridgestonecompanyNovo NordiskcompanyPalantircompanyAccenturecompanyKrogercompanyRockwell AutomationcompanyZeisscompanyBBVAcompanyFedExcompanyH&McompanyInfosyscompanyPaytmcompanyCapital GroupcompanyDisneycompanyDowcompanyKyndrylcompanyNovartiscompanyEYcompanyCarnivalcompanyCognizantcompanyEatoncompanyKPMGcompanyMajescocompanyMcKinseycompanyCommunity Health NetworkcompanyIntermountaincompanyNorthwestern Memorial HealthcarecompanyOhio State University Wexner Medical CentercompanyThermo Fisher Scientificcompany1-800-Flowers.comcompanyMediterranean ShippingcompanySynoptekcompanydentsucompanyEli LillycompanyFordcompanyCarlsbergcompanyE.ONcompanyNational Australia BankcompanyAlaska AirlinescompanyOregon State UniversitycompanyPetrofaccompanyWiprocompanyWTWotherDell TechnologiescompanyDeutsche TelekomcompanyTomTomcompanyCall of Duty: Black Ops 6productAmazon Fire TVproductJefferiescompany
REPORTING 196PROJECTING 47POSITIONING 155EXPLANATORY 29ANALYST 40

Topics 103

azure×48copilot×36capital×35revenue×32game×20artificial intelligence×17operating×17gross×17cloud×15office×10search×9activision×9security×8customer×7xbox×7dynamics×6pc×6windows×6cost×5seat×5

Themes 311

ai×26growth×18commercial×15revenue growth×14long-term×7revenue decline×7enterprise adoption×5copilot+×5cloud and ai×5operating×4constant currency×4guidance×4share gains×3performance×3customer examples×3generative ai×3customer adoption×3revenue recognition×3mix×3dollars×3content and services×3capacity constraints×3platform shift×2platform integration×2customer growth×2monthly active×2usage growth×2market share gain×2customer support×2secure future initiative×2linkedin×2q4 fy2024 growth×2azure mix and ai infrastructure×2dynamics×2excluding accounting estimate change×2increase×2q4 fy2024 increase×2consumption business growth×2percentage×2acquisition impact×2product mix×2ad revenue×2from operations×2free cash flow×2cloud growth×2azure growth×2search and news advertising×2quarterly performance×2contact center×2spending×2large enterprise customers×2enterprise wins×2european softness×2leasing×2monetization×2fiscal q4×1annual growth×1capital-intensive investments×1innovation opportunity×1scale and security×1dynamic management×1examples×1global expansion×1new silicon deployment×1product introduction×1from migrations×1cloud streamlining×1arc adoption×1enterprise workloads×1sap migration×1vmware migration×1model selection×1azure ai adoption×1frontier model access×1api access to third-party models×1as a service customers×1broad capabilities×1paid customers growth×1customer base×1real-time intelligence capabilities×1product focus shift×1developer tool adoption×1organizational adoption×1developer productivity×1revenue run rate×1github business size×1future of work×1daily use at work×1workflow automation×1large-customer adoption×1large-customer usage×1enterprise deployment×1agent capabilities×1meeting automation×1custom app building×1industry-specific expansion×1healthcare adoption×1clinical report generation×1healthcare customer wins×1erp and crm transformation×1copilot-first ai×1business central adoption×1collaboration platform×1premium seats growth×1premium adoption×1active devices growth×1strategic focus×1company priority×1for security adoption×1multi-workload usage×1defender for cloud revenue×1cloud security×1business expansion×1member growth×1user activity×1video format growth×1b2b digital×1premium subscription growth×1career coaching×1advertising and news×1bing edge and copilot engagement×1ex tac growth×1bing and edge share gain×1generative experience testing×1dynamic response×1web engagement×1image creation×1consumer adoption×1publisher reach×1platform payments×1roi improvement×1copilot campaign creation×1content pipeline strength×1title preview×1title availability×1streaming access×1new audience expansion×1tv debut×1viewership×1fallout engagement×1positive×1top and bottom line×1azure and microsoft 365 commitments×1core annuity execution×1content sourcing shift×1purchase accounting adjustments×1impact on results×1cloud margin×1adjusted margin×1dollar growth×1margin rate decline×1excluding accounting change×1acquisition-related costs×1acquisition-driven increase×1workforce growth×1stable profitability×1slight expansion×1improvement from gross margin and cost discipline×1arpu growth×1paid seats growth×1small and medium business and frontline worker offerings×1small and medium business and frontline worker seat growth moderation×1consumer growth×1microsoft 365×1segment percentage decline×1server products and cloud services growth×1azure and other cloud services growth×1demand versus capacity×1european growth×1installed base growth×1seat sales mix×1hybrid solutions demand×1transactional purchasing weakness×1enterprise and partner services×1company-wide×1above expectations×1oem revenue×1product launch×1volume growth×1first-party×1third-party×1hardware×1finance leases included×1cash outlay×1and expense favorable×1equity method losses×1higher due to state tax law×1dividends and share repurchases×1shareholder returns×1reporting basis×1full-year guidance×1demand-driven investment×1cost discipline and cogs×1margin compression guidance×1fiscal 2025 guidance×1revenue headwind×1margin headwind×1bookings volatility×1gross margin×1infrastructure buildouts×1productivity and business processes×1azure driver and variability×1consumption trends continuation×1per-user growth moderation×1h2 growth acceleration from ai capacity×1windows oem×1devices×1gaming×1purchase accounting costs×1integration costs×1offset by interest expense×1quarterly volatility from gains or losses×1q1 guidance×1global customers×1financial commitments×1year-over-year expansion×1capex relationship×1investment timing×1capital spending planning×1cloud comparison×1portfolio mix focus×1office suite seats×1github scale×1inference hardware×1capital cycle framing×1data center buildout×1capacity scaling×1breadth-driven growth×1timing discussion×1land build and finance leases×1long-lived and flexible×1global buildout×1transition rollout×1geo-by-geo rollout×1global rollout driven by demand×1large customers in every geography×1near-term monetization and long-duration returns×1strong year×1expectations reset×1saas adoption×1genai monetization×1quarter impact×1landing growth×1quarter-over-quarter growth×1returning customers×1expansion×1healthy core business×1additional details×1genai transformation×1genai-driven transformation×1platform dependency×1design wins×1meter adoption×1enterprise workload wins×1cloud cycle improvement×1consistent×1internal and customer use×1efficiency×1company framing×1investment pacing×1lease accounting×1upfront recognition×1cash context×1capital spend×1leases versus build×1build cost allocation×1build spending considerations×1lead time and asset duration×1planning×1spend×1jump×1beat magnitude×1close rates×1behavior×1annuity motion×1execution×1june quarter drivers×1economic softness×1june quarter performance×1q4 guidance×1other ongoing factors×1product update×1cloud partnerships×1workspace design system×1workspace planning workflow×1design system replication×1email-to-reply for sales×1email prompt with crm data×1record in context and reply generation×1already happening×1grounding workflows in more data×1workflow context×1teams notification×1workflow extensions×1knowledge work×1productivity gains×1activision contribution×1net growth×1investment and acquisition×1portfolio expansion×1platform expansion×1cross-platform assets×1mobile reach×1cross-platform access×1new access points×1cloud expansion×1user reach×1game asset strategy×1subscription business×1ip ownership value drivers×1progress and announcements×1

Key Metrics 89

revenue×52revenue growth×30capital expenditures×16gross margin percentage×14customers×11growth×11capital expenditure×10operating expenses×6seats×5operating income×5operating margin×5capacity×5bookings×4gross margin dollars×4demand×4margin×4capex×4organizations×3commercial remaining performance obligation×3tax rate×3workloads×2monthly active users×2market share×2security customers×2share×2engagement×2earnings per share×2seat growth×2installed base×2revenue ex tac×2spend×2cash flow from operations×2free cash flow×2capital spending×2seat count×2customer count×2productivity×2share gains×1models×1average spend per customer×1adoption×1revenue run rate×1daily use×1employees×1clinical reports×1usage×1active devices×1member growth×1content shares×1uploads×1sign ups×1images created×1chats×1payments×1roi×1hours played×1mix×1headcount×1arpu×1paid seats×1subscriptions×1volume×1cash paid for pp&e×1spend mix×1other income and expense×1equity method losses×1capital returned×1cash returned to shareholders×1operating income growth×1cost of goods sold×1cogs×1operating expense×1interest income×1gains or losses×1gross margin×1growth rate×1spending×1training×1seat landing×1cost savings×1penetration×1margins×1fill rate×1capital spend×1revenue growth rate×1close rate×1sales cycle×1renewals×1commitments×1

Entities 904

Microsoft×425Amy Hood×148Satya Nadella×99Activision×21Xbox×15Windows×11GitHub×10LinkedIn×9Karl Keirstead×9Dynamics 365×6Copilot+ PCs×6GenAI×5Copilot Studio×4DAX Copilot×4Keith Weiss×4Mark Moerdler×4Kash Rangan×4Keith Bachman×4Oracle×3Power Platform×3Bing×3IP×3Fallout×3Cobalt 100×2SAP×2Azure OpenAI Service×2Cohere×2Secure Future Initiative×2Amazon Prime×2Brent Thill×2Brad Zelnick×2Advanced Micro Devices (AMD)×1NVIDIA×1Maia×1Elastic×1MongoDB×1Siemens×1Snowflake×1Teradata×1Arc×1Atos×1Coles×1Daimler Truck×1Domino's×1Haleon×1Azure VMware Solution×1VMware×1GPT-4o×1H&R Block×1Suzuki×1Swiss Re×1Telstra×1Freshworks×1Meesho×1Zomato×1Phi-3×1BlackRock×1Emirates×1Epic×1Navy Federal Credit Union×1Meta×1Mistral×1Adobe×1Bridgestone×1Novo Nordisk×1Palantir×1Accenture×1Kroger×1Rockwell Automation×1Zeiss×1BBVA×1FedEx×1H&M×1Infosys×1Paytm×1Copilot Workspace×1Capital Group×1Disney×1Dow×1Kyndryl×1Novartis×1EY×1Team Copilot×1Carnival×1Cognizant×1Eaton×1KPMG×1Majesco×1McKinsey×1Community Health Network×1Intermountain×1Northwestern Memorial Healthcare×1Ohio State University Wexner Medical Center×1Thermo Fisher Scientific×11-800-Flowers.com×1Mediterranean Shipping×1Synoptek×1dentsu×1Eli Lilly×1Ford×1Carlsberg×1E.ON×1National Australia Bank×1Alaska Airlines×1Oregon State University×1Petrofac×1Wipro×1WTW×1Dell Technologies×1Deutsche Telekom×1TomTom×1Performance Max×1Call of Duty: Black Ops 6×1Amazon Fire TV×1Commercial Cloud×1Jefferies×1

Business Segments 289

Intelligent Cloud×126Productivity and Business Processes×80More Personal Computing×74Gaming×9

Sectors 261

cloud computing×131artificial intelligence×43gaming×18cybersecurity×11advertising×5healthcare×4collaboration software×4consumer electronics×4semiconductor×3media and entertainment×3streaming media×3data analytics×2workflow automation×2contact center software×2operating systems×2television×2customer service software×2software as a service×2sales software×2customer relationship management×2database software×1virtualization software×1productivity software×1professional services×1enterprise resource planning software×1pharmaceuticals×1automotive×1personal computing×1computer hardware×1banking×1internet search×1consumer internet×1data center×1subscription services×1

Regions 11

Europe×5global×3worldwide×1U.S.×1US×1

Metadata Distributions

Sentiment
positive 219negative 40neutral 208
Temporality
backward 204forward 75current 188
Certainty
definitive 141confident 184moderate 116tentative 25speculative 1
Magnitude
major 111moderate 253minor 103
Direction
improvement 69decline 17flat 5mixed 5none 371
Time Horizon
immediate 186near_term 145medium_term 38long_term 14unspecified 84
Verifiability
quantitative 170event 31qualitative 266
Analyst Intent
probing 14challenging 2confirming 7seeking_detail 11seeking_guidance 6

Speakers

Executives
AHAmy HoodCFOSNSatya NadellaCEO
Analysts
BZBrad ZelnickanalystBTBrent ThillanalystKKKarl KeirsteadanalystKRKash RangananalystKBKeith BachmananalystKWKeith WeissanalystMMMark MoerdleranalystMMMark Murphyanalyst
Other
BIBrett IversenirOPOperatoroperator

Sections

TypeLabelSpeaker
preamblePreambleBrett Iversen
prepared_remarksPrepared RemarksSatya Nadella, Amy Hood
qa_sessionQ&A Session
closing_remarksClosing RemarksSatya Nadella, Amy Hood, Brett Iversen
operator_signoffOperator Sign-offOperator

Q&A Exchanges 8

#AnalystFirmTurns
1
KWKeith Weiss
Morgan Stanley6
2
MMMark Moerdler
Bernstein Research6
3
KRKash Rangan
Goldman Sachs6
4
BTBrent Thill
Jefferies5
5
KKKarl Keirstead
UBS5
6
BZBrad Zelnick
Deutsche Bank6
7
MMMark Murphy
JPMorgan5
8
KBKeith Bachman
BMO Capital Markets4

Claim Taxonomy 467

REPORTING196
resultFinancial outcome for a completed period119
metricNon-financial quantitative fact48
operationalDiscrete completed event29
PROJECTING47
guidanceQuantitative expectation with number + time40
commitmentPromise with binary verifiable outcome7
targetLong-term aspirational quantitative goal0
POSITIONING155
strategyPriority, direction, or initiative135
competitiveCompany's position or advantages9
opportunityMarket condition framed as growth driver5
riskHeadwind, constraint, or uncertainty6
EXPLANATORY29
attributionWhy a specific outcome happened5
contextNon-company macro/industry fact24
FRAMING0
thesisFalsifiable belief about how the world works0
ANALYST40
questionInterrogative seeking information17
observationRestates a fact or data point16
concernFlags a risk or challenge1
estimateAnalyst's own projection or calculation3
sentimentOpinion, praise, or critique3

Transcript

Preamble
OP
Operatoroperator
Greetings and welcome to the Microsoft Fiscal Year 2024 Fourth Quarter Earnings Conference Call. At this time all participants are in a listen-only mode.
A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Brett Iversen, Vice President of Investor Relations.
BI
Brett IversenirMicrosoft
Good afternoon and thank you for joining us today.
On the call with me are Satya Nadella, Chairman and Chief Executive Officer; Amy Hood, Chief Financial Officer, Alice Jolla, Chief Accounting Officer, and Keith Dolliver, Corporate Secretary and Deputy General Counsel. On the Microsoft Investor Relations website, you can find our earnings press release and financial summary slide deck, which is intended to supplement our prepared remarks during today's call and provides the reconciliation of differences between GAAP and non-GAAP financial measures. More detailed outlook slides will be available on the Microsoft Investor Relations website when we provide outlook commentary on today's call. On this call we will discuss certain non-GAAP items. The non-GAAP financial measures provided should not be considered as a substitute for or superior to the measures of financial performance prepared in accordance with GAAP. They are included as additional clarifying items to aid investors in further understanding the company's fourth quarter performance in addition to the impact these items and events have on the financial results.
All growth comparisons we make on the call today relate to the corresponding period of last year unless otherwise noted. We will also provide growth rates in constant currency, when available, as a framework for assessing how our underlying businesses performed, excluding the effect of foreign currency rate fluctuations. Where growth rates are the same in constant currency, we will refer to the growth rate only.
We will post our prepared remarks to our website immediately following the call until the complete transcript is available. Today's call is being webcast live and recorded. If you ask a question, it will be included in our live transmission, in the transcript, and in any future use of the recording. You can replay the call and view the transcript on the Microsoft Investor Relations website. During this call, we will be making forward-looking statements which are predictions, projections, or other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could materially differ because of factors discussed in today's earnings press release, in the comments made during this conference call, and in the risk factor section of our Form 10-K, Forms 10-Q, and other reports and filings with the Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statement. And with that, I'll turn the call over to Satya.
Prepared Remarks
SN
Satya NadellaCEOMicrosoft
Thank you, Brett. We had a solid close to our fiscal year. All-up, annual revenue was more than $245 billion, up 15% year-over-year. And Microsoft Cloud revenue surpassed $135 billion, up 23%. Before I dive in, I want to offer some broader perspective on the AI platform shift. Similar to the cloud, this transition involves both knowledge and capital intensive investments. And as we go through this shift, we are focused on two fundamental things: First, driving innovation across a product portfolio that spans infrastructure and applications so as to ensure that we are maximizing our opportunity, while in parallel continuing to scale our cloud business and prioritizing fundamentals, starting with security. Second, using customer demand signal and time to value to manage our cost structure dynamically and generate durable, long-term operating leverage. With that, let me highlight examples, starting with Azure. Our share gains accelerated this year, driven by AI. We expanded our datacenter footprint, announcing investments across four continents. These are long-term assets around the world to drive growth for the next decade and beyond. We added new AI accelerators from AMD and NVIDIA, as well as our own first party silicon Azure Maia. And we introduced new Cobalt 100, which provides best-in-class performance for customers like Elastic, MongoDB, Siemens, Snowflake, and Teradata. We continued to see sustained revenue growth from migrations. Azure Arc is helping customers in every industry, from ABB and Cathay Pacific, to LaLiga, to streamline their cloud migrations. We now have 36,000 Arc customers, up 90% year-over-year. We remain the hyperscale cloud of choice for SAP and Oracle workloads. Atos, Coles, Daimler Truck AG, Domino's, Haleon, for example, all migrated their mission-critical SAP workloads to our cloud. And with our Azure VMware Solution, we offer the fastest and most cost-effective way for customers to migrate their VMware workloads too.
With Azure AI, we are building out the app server for the AI wave, providing access to the most diverse selection of models to meet customers' unique cost, latency, and design considerations. All-up, we now have over 60,000 Azure AI customers, up nearly 60% year-over-year, and average spend per customer continues to grow. Azure OpenAI Service provides access to best-in-class frontier models, including as of this quarter GPT-4o and GPT-4o mini. It is being used by leading companies in every industry, including H&R Block, Suzuki, Swiss Re, Telstra as well as digital natives like Freshworks, Meesho, and Zomato. With Phi-3, we offer a family of powerful, small language models, which are being used by companies like BlackRock, Emirates, Epic, ITC, Navy Federal Credit Union, and others. And with Models as a Service, we provide API access to third-party models, including as of last week the latest from Cohere, Meta, and Mistral. The number of paid Models as a Service customers more than doubled quarter-over-quarter, and we are seeing increased usage by leaders in every industry, from Adobe and Bridgestone, to Novo Nordisk and Palantir. Now, on to data.
Our Microsoft Intelligent Data Platform provides customers with the broadest capabilities spanning databases, analytics, business intelligence, and governance along with seamless integration with all of our AI services. The number of Azure AI customers also using our data and analytics tools grew nearly 50% year-over-year. Microsoft Fabric, our AI-powered next generation data platform — now has over 14,000 paid customers, including leaders in every industry, from Accenture and Kroger, to Rockwell Automation and Zeiss up 20% quarter-over-quarter. And, this quarter, we introduced new first-of-their-kind real-time intelligence capabilities in Fabric so customers can unlock insights on high-volume, time sensitive data. Now, on to developer tools.
GitHub Copilot is by far the most widely adopted AI-powered developer tool. Just over two years since its general availability, more than 77,000 organizations from BBVA, FedEx, and H&M, to Infosys and Paytm have adopted Copilot, up 180% year-over-year. And we are going further. With Copilot Workspace, we offer Copilot-native end-to-end developer productivity across plan, build, test, debug, and deploy cycle. Copilot is driving GitHub growth, all up, GitHub's annual revenue run rate is now $2 billion. Copilot accounted for over 40% of GitHub revenue growth this year, and is already a larger business than all of GitHub was when we acquired it.
We are also integrating generative AI across Power Platform, enabling anyone to use natural language to create apps, automate workflows, or build a website. To date, over 480,000 organizations have used AI-powered capabilities in Power Platform, up 45% quarter-over-quarter. In total, we now have 48 million monthly active users of Power Platform, up 40% year-over-year. Now, on to future of work. Copilot for Microsoft 365 is becoming a daily habit for knowledge workers, as it transforms work, workflow, and work artifacts. The number of people who use Copilot daily at work nearly doubled quarter-over-quarter, as they use it to complete tasks faster, hold more effective meetings, and automate business workflows and processes.
Copilot customers increased more than 60% quarter-over-quarter. Feedback has been positive, with majority of enterprise customers coming back to purchase more seats. All-up, the number of customers with more than 10,000 seats more than doubled quarter-over-quarter, including Capital Group, Disney, Dow, Kyndryl, Novartis.
And EY alone will deploy Copilot to 150,000 of its employees. And we are going further, adding agent capabilities to Copilot. New Team Copilot can facilitate meetings, and create and assign tasks. And, with Copilot Studio, customers can extend Copilot for Microsoft 365 and build custom copilots that proactively respond to data and events using their own first and third-party business data. To date, 50,000 organizations from Carnival Corporation, Cognizant, and Eaton, to KPMG, Majesco, and McKinsey have used Copilot Studio, up over 70% quarter-over-quarter. We are also extending Copilot to specific industries, including healthcare, with DAX Copilot. More than 400 healthcare organizations including Community Health Network, Intermountain, Northwestern Memorial Healthcare, and Ohio State University Wexner Medical Center have purchased DAX Copilot to date, up 40% quarter-over-quarter, and the number of AI-generated clinical reports more than tripled. Copilot is also transforming ERP and CRM business applications.
We again took share this quarter, as customers like ThermoFisher Scientific switched to Dynamics. Our new Dynamics 365 Contact Center is a Copilot-first solution that infuses generative AI throughout the contact center workflow. Companies like 1-800 Flowers, Mediterranean Shipping, Synoptek will rely on it to deliver better customer support. And Dynamics 365 Business Central is now trusted by over 40,000 organizations for core ERP. Microsoft Teams has become essential to how hundreds of millions of people meet, call, chat, collaborate, and do business. We once again saw year-over-year usage growth. Teams Premium has surpassed 3 million seats, up nearly 400% year-over-year, as organizations like dentsu, Eli Lilly, and Ford chose it for advanced features like end-to-end encryption and real-time translation.
When it comes to devices, we introduced our new category of Copilot+ PCs this quarter. They are the fastest, most intelligent Windows PCs ever, and they include a new system architecture designed to deliver best-in-class performance and breakthrough AI experiences. We are delighted by early reviews. And we are looking forward to the introduction of more Copilot+ PCs powered by all of our silicon and OEM partners in the coming months. More broadly, Windows 11 active devices increased 50% year-over-year. And we are seeing accelerated adoption of Windows 11 by companies like Carlsberg, E.ON, National Australia Bank.
Now, on to security. We continue to prioritize security above all else. We are doubling down on our Secure Future Initiative, as we implement our principles of secure by design, secure by default, and secure operations. Through this initiative, we are also continually applying what we are learning, and translating it into innovation for our customers, including how we approach AI. Over 1,000 paid customers used Copilot for Security, including Alaska Airlines, Oregon State University, Petrofac, Wipro, WTW. And we are also securing customers' AI deployments, with updates to Defender and Purview. All-up, we now have over 1.2 million security customers. Over 800,000 including Dell Technologies, Deutsche Telekom, TomTom use four or more workloads, up 25% year-over-year. And Defender for Cloud, our cloud security solution, surpassed $1 billion in revenue over the past 12 months as we protect customer workloads across multi-cloud and hybrid environments. Now, let me turn to our consumer businesses, starting with LinkedIn. LinkedIn continues to see accelerated member growth and record engagement. 1.5 million pieces of content are shared every minute on the platform. And video is now the fastest growing format on LinkedIn, with uploads up 34% year-over-year. LinkedIn Marketing Solutions continues to be a leader in B2B digital advertising, helping companies deliver the right message, to the right audience, on a safe, trusted platform. And when it comes to our subscription businesses, Premium sign ups increased 51% this fiscal year, and we are adding even more value to our members and customers with new AI tools. Our reimagined AI-powered LinkedIn Premium experience is now available for every Premium subscriber worldwide, helping them more easily and intuitively connect to opportunity, learn, and get career coaching. Finally, hiring took share for the second consecutive year. And, now, on to Search, Advertising and News. We are ensuring that Bing, Edge, and Copilot collectively are driving more engagement and value to end-users, publishers, and advertisers. Our overall revenue ex-TAC increased 19% year-over-year, and we again took share across Bing and Edge. We continue to apply generative AI to pioneer new approaches to how people search and browse. Just last week, we announced we are testing a new generative search experience, which creates a dynamic response to a user's query, while maintaining click share to publishers.
And we continue to drive record engagement with Copilot for the web. Consumers have used Copilot to create over 12 billion images and conduct 13 billion chats to date, up 150% since the start of the calendar year. Thousands of news and entertainment publishers trust us to reach new audiences with Microsoft Start. And, in fact, we have paid them $1 billion over the last five years. We are helping advertisers increase their ROI too. We have seen positive response to Performance Max, which uses AI to dynamically create and optimize ads. And Copilot in Microsoft Ad Platform helps marketers create campaigns and troubleshoot using natural language. Now, on to gaming.
We now have over 500 million monthly active users across platforms and devices. And our content pipeline has never been stronger. We previewed a record 30 new titles at our showcase this quarter. 18 of them such as Call of Duty: Black Ops 6 will be available on Game Pass. Game Pass Ultimate subscribers can now stream games directly on the devices they already have, including as of last month, Amazon Fire TVs. Finally, we are bringing our IP to new audiences. Fallout, for example, made its debut as a TV show on Amazon Prime this quarter. It was the second most watched title on the platform ever, and hours played on Game Pass for Fallout franchise increased nearly 5x quarter-over-quarter.
In closing, I am energized about the opportunities ahead. We are investing for the long-term in our fundamentals, in our innovation, and in our people. With that, let me turn it over to Amy.
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#45
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Amy HoodCFOMicrosoft
Thank you, Satya, and good afternoon everyone. This quarter, revenue was $64.7 billion, up 15% and 16% in constant currency. Earnings per share was $2.95 and increased 10% and 11% in constant currency. In our largest quarter of the year, we again delivered double-digit top and bottom line growth with continued share gains across many of our businesses and record commitments to our Microsoft Cloud platform. Commercial bookings were significantly ahead of expectations and increased 17% and 19% in constant currency. This record commitment quarter was driven by growth in the number of 10-million-dollar-plus and 100-million-dollar-plus contracts for both Azure and Microsoft 365 and consistent execution across our core annuity sales motions.
Commercial remaining performance obligation increased 20% and 21% in constant currency to $269 billion. Roughly 40% will be recognized in revenue in the next 12 months, up 18% year-over-year. The remaining portion, recognized beyond the next 12 months, increased 21%.
And this quarter, our annuity mix was 97%. At a company level, Activision contributed a net impact of approximately 3 points to revenue growth, was a 2 point drag on operating income growth, and had a negative $0.06 impact to earnings per share. A reminder that this net impact includes adjusting for the movement of Activision content from our prior relationship as a third-party partner to first-party, and includes $938 million from purchase accounting adjustments, integration, and transaction-related costs. FX did not have a significant impact on our results and was roughly in line with our expectations on total company revenue, segment level revenue, COGS, and operating expense growth. Microsoft Cloud revenue was $36.8 billion and grew 21% and 22% in constant currency, roughly in line with expectations. Microsoft Cloud gross margin percentage decreased roughly 2 points year-over-year to 69% in line with expectations. Excluding the impact of the change in accounting estimate for useful lives, gross margin percentage decreased slightly driven by sales mix shift to Azure, partially offset by improvement in Azure even with the impact of scaling our AI infrastructure. Company gross margin dollars increased 14% and 15% in constant currency and gross margin percentage decreased slightly year-over-year to 70%. Excluding the impact of the change in accounting estimate, gross margin percentage increased slightly, even with the impact from purchase accounting adjustments, integration, and transaction-related costs from the Activision acquisition.
Operating expenses increased 13% with 9 points from the Activision acquisition. At a total company level, headcount at the end of June was 3% higher than a year ago. Operating income increased 15% and 16% in constant currency and operating margins were 43%, relatively unchanged year-over-year. Excluding the impact of the change in accounting estimate, operating margins increased slightly driven by the higher gross margin noted earlier and improved operating leverage through continued cost discipline.
Now to our segment results. Revenue from Productivity and Business Processes was $20.3 billion and grew 11% and 12% in constant currency, slightly ahead of expectations driven by better-than-expected results across all business units. Office commercial revenue grew 12% and 13% in constant currency. Office 365 commercial revenue increased 13% and 14% in constant currency with ARPU growth primarily from E5 momentum as well as Copilot for Microsoft 365. Paid Office 365 commercial seats grew 7% year-over-year with installed base expansion across all customer segments. Seat growth was again driven by our small and medium business and frontline worker offerings, although both segments continued to moderate. Office commercial licensing declined 9% and 7% in constant currency, with continued customer shift to cloud offerings.
Office consumer revenue increased 3% and 4% in constant currency with continued momentum in Microsoft 365 subscriptions, which grew 10% to 82.5 million. LinkedIn revenue increased 10% and 9% in constant currency driven by better-than-expected performance across all businesses. Dynamics revenue grew 16% driven by Dynamics 365 which grew 19% and 20% in constant currency. We saw continued growth across all workloads and better-than-expected new business. Dynamics 365 now represents roughly 90% of total Dynamics revenue.
Segment gross margin dollars increased 9% and 10% in constant currency and gross margin percentage decreased roughly 1 point year-over-year. Excluding the impact of the change in accounting estimate, gross margin percentage decreased slightly driven by Office 365 as we scale our AI infrastructure. Operating expenses increased 5%, and operating income increased 12% and 13% in constant currency. Next, the Intelligent Cloud segment. Revenue was $28.5 billion, increasing 19% and 20% in constant currency, in line with expectations. Overall, server products and cloud services revenue grew 21% and 22% in constant currency. Azure and other cloud services revenue grew 29% and 30% in constant currency, in line with expectations and consistent with Q3 when adjusting for leap year.
Azure growth included 8 points from AI services where demand remained higher than our available capacity. In June, we saw slightly lower-than-expected growth in a few European geos. In our per-user business, the enterprise mobility and security installed base grew 10% to over 281 million seats with continued impact from moderated growth in seats sold outside the Microsoft 365 suite. Therefore, our Azure consumption business continues to grow faster than total Azure. In our on-premises server business, revenue increased 2% and 3% in constant currency. Growth was driven by demand for our hybrid solutions although with slightly lower-than-expected transactional purchasing. Enterprise and partner services revenue decreased 7% on a strong prior year comparable for Enterprise Support Services. Segment gross margin dollars increased 16% and gross margin percentage decreased roughly 2 points year-over-year. Excluding the impact of the change in accounting estimate, gross margin percentage decreased slightly driven by sales mix shift to Azure, partially offset by the improvement in Azure noted earlier, even with the impact of scaling our AI infrastructure.
Operating expenses increased 5% and operating income grew 22% and 23% in constant currency. Now to More Personal Computing. Revenue was $15.9 billion, increasing 14% and 15% in constant currency, with 12 points of net impact from the Activision acquisition. Results were above expectations driven by Windows commercial and Search. The PC market was as expected and Windows OEM revenue increased 4% year-over-year. Windows commercial products and cloud services revenue increased 11% and 12% in constant currency, ahead of expectations due to higher in-period revenue recognition from the mix of contracts. Devices revenue decreased 11% and 9% in constant currency, roughly in line with expectations, as we remain focused on our higher margin premium products. While early days, we're excited about the recent launch of our Copilot+ PCs. Search and news advertising revenue ex-TAC increased 19%, ahead of expectations, primarily due to improved execution. Healthy volume growth was driven by Bing and Edge.
And in Gaming, revenue increased 44% with 48 points of net impact from the Activision acquisition. Xbox content and services revenue increased 61%, slightly ahead of expectations, with 58 points of net impact from the Activision acquisition. Stronger-than-expected performance in first-party content was partially offset by third-party content performance. Xbox hardware revenue decreased 42% and 41% in constant currency.
Segment gross margin dollars increased 21%, with 10 points of net impact from the Activision acquisition. Gross margin percentage increased roughly 3 points year-over-year primarily driven by sales mix shift to higher margin businesses. Operating expenses increased 43% with 41 points from the Activision acquisition. Operating income increased 5% and 6% in constant currency. Now back to total company results.
Capital expenditures including finance leases were $19 billion, in line with expectations, and cash paid for PP&E was $13.9 billion. Cloud and AI related spend represents nearly all of total capital expenditures. Within that, roughly half is for infrastructure needs where we continue to build and lease datacenters that will support monetization over the next 15 years and beyond. The remaining cloud and AI related spend is primarily for servers, both CPUs and GPUs, to serve customers based on demand signals. For the full fiscal year, the mix of our cloud and AI related spend was similar to Q4.
Cash flow from operations was $37.2 billion, up 29% driven by strong cloud billings and collections. Free cash flow was $23.3 billion, up 18% year-over-year, reflecting higher capital expenditures to support our cloud and AI offerings. For the full-year, cash flow from operations surpassed $100 billion for the first time, reaching $119 billion.
This quarter, other income and expense was negative $675 million, more favorable than anticipated with lower-than-expected interest expense and higher-than-expected interest income. Our losses on investments accounted for under the equity method were as expected. Our effective tax rate was approximately 19%, higher than anticipated due to a state tax law signed in June that was effective retroactively. And finally, we returned $8.4 billion to shareholders through dividends and share repurchases, bringing our total cash returned to shareholders to over $34 billion for the full fiscal year.
Now, moving to our outlook. My commentary for both the full-year and next quarter is on a U.S. dollar basis unless specifically noted otherwise. Let me start with some full year commentary for FY2025. First, FX. Assuming current rates remain stable, we expect FX to have no meaningful impact to full-year revenue, COGS, or operating expense growth. Next, we continue to expect double-digit revenue and operating income growth as we focus on delivering differentiated value for our customers. To meet the growing demand signal for our AI and cloud products, we will scale our infrastructure investments with FY2025 capital expenditures expected to be higher than FY2024. As a reminder, these expenditures are dependent on demand signals and adoption of our services that will be managed through the year. As scaling these investments drives growth in COGS, we will remain disciplined on operating expense management.
Therefore, we expect FY2025 OpEx growth to be in the single digits. And given our focused commitment to managing at the operating margin level, we still expect FY2025 operating margins to be down only about one point year-over-year. And finally, we expect our FY2025 effective tax rate to be around 19%. Now, to the outlook for our first quarter. Based on current rates, we expect FX to decrease total revenue and segment level revenue growth by less than one point. We expect FX to decrease COGS growth by less than one point and to have no meaningful impact to operating expense growth. In commercial bookings, increased long-term commitments to our platform and strong execution across core annuity sales motions should drive healthy growth on a growing expiry base. As a reminder, larger long-term Azure contracts, which are more unpredictable in their timing, can drive increased quarterly volatility in our bookings growth rate. Microsoft Cloud gross margin percentage should be roughly 70%, down year-over-year driven by the impact of scaling our AI infrastructure. We expect capital expenditures to increase on a sequential basis given our cloud and AI demand, as well as existing AI capacity constraints. As a reminder, there can be quarterly spend variability from cloud infrastructure buildouts and the timing of delivery of finance leases. Next to segment guidance. In Productivity and Business Processes, we expect revenue to grow between 10% and 11% in constant currency, or US$20.3 to US$20.6 billion.
In Office Commercial, revenue growth will again be driven by Office 365 with seat growth across customer segments and ARPU growth through E5 and Copilot for Microsoft 365. We expect Office 365 revenue growth to be approximately 14% in constant currency. In our on-premises business, we expect revenue to decline in the mid to high-teens. In Office consumer, we expect revenue growth in the low to mid-single digits, driven by Microsoft 365 subscriptions. For LinkedIn, we expect revenue growth in the high single digits driven by continued growth across all businesses. And in Dynamics, we expect revenue growth in the low to mid-teens driven by Dynamics 365. For Intelligent Cloud we expect revenue to grow between 18% and 20% in constant currency, or US$28.6 billion to US$28.9 billion. Revenue will continue to be driven by Azure which, as a reminder, can have quarterly variability primarily from our per-user business and in-period revenue recognition depending on the mix of contracts. In Azure, we expect Q1 revenue growth to be 28% to 29% in constant currency.
Growth will continue to be driven by our consumption business, inclusive of AI, which is growing faster than total Azure. We expect the consumption trends from Q4 to continue through the first half of the year. This includes both AI demand impacted by capacity constraints and non-AI growth trends similar to June. Growth in our per-user business will continue to moderate. And in H2, we expect Azure growth to accelerate as our capital investments create an increase in available AI capacity to serve more of the growing demand.
In our on-premises server business, we expect revenue to decline in the low single digits as continued hybrid demand will be more than offset by lower transactional purchasing. And in Enterprise and partner services, revenue should decline in the low single digits. In More Personal Computing, we expect revenue to grow between 9% and 12% in constant currency, or US$14.9 billion to US$15.3 billion. Windows OEM revenue growth should be relatively flat, roughly in line with the PC market. In Windows commercial products and cloud services, customer demand for Microsoft 365 and our advanced security solutions should drive revenue growth in the mid-single digits. As a reminder, our quarterly revenue growth can have variability primarily from in-period revenue recognition depending on the mix of contracts. In Devices, revenue growth should be in the low to mid-single digits. Search and news advertising ex-TAC revenue growth should be in the mid to high-teens. This will be higher than overall Search and news advertising revenue growth, which we expect to be in the low single digits. And in Gaming, we expect revenue growth in the mid-30s, including approximately 40 points of net impact from the Activision acquisition. We expect Xbox content and services revenue growth in the low to mid-50s, driven by the net impact from the Activision acquisition. Hardware revenue will again decline year-over-year. Now back to company guidance.
We expect COGS between US$19.95 billion to US$20.15 billion, including approximately $700 million from purchase accounting, integration, and transaction-related costs from the Activision acquisition. We expect operating expense of US$15.2 billion to US$15.3 billion, including approximately $200 million from purchase accounting, integration, and transaction-related costs from the Activision acquisition. Other income and expense should be roughly negative $650 million driven by losses on investments accounted for under the equity method as interest income will be mostly offset by interest expense. As a reminder, we are required to recognize gains or losses on our equity investments, which can increase quarterly volatility. We expect our Q1 effective tax rate to be approximately 19%.
In closing, we remain focused on delivering innovations that matter to our global customers of every size. That focus extends to delivering on our financial commitments as well. We delivered operating margin growth of nearly three points year-over-year even as we accelerated our AI investments, completed the Activision acquisition, and had a headwind from the change of useful lives last year. So, as we begin FY2025, we will continue to invest in the cloud and AI opportunity ahead aligned, and if needed adjusted, to the demand signals we see. We are committed to growing our leadership across our commercial cloud and within that, the AI platform, and we feel well positioned as we start FY2025. With that, let's go to Q&A, Brett.
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Q&A Session
Q&A 1/8
OP
Operatoroperator
[Operator Instructions] And our first question comes from the line of Keith Weiss with Morgan Stanley. Please proceed.
KW
Keith WeissanalystMorgan Stanley
Excellent.
Thank you, guys for taking the question and congratulations on another great quarter and really solid overall fiscal year. Right now, there's a industry debate raging around the CapEx requirements around Generative AI and whether the monetization is actually going to match with that. And I think the question for you guys, from a Microsoft perspective, is CapEx still an appropriate leading indicator for cloud growth? Or does the shift in gross margin profile change that equation? Or said another way, maybe can you give us a little bit more help in understanding the timing between the CapEx investments and the yield on those investments? Thank you.
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Satya NadellaCEOMicrosoft
Thank you, Keith. Let me start, and then Amy can add to this. I think, I would say we primarily start right now from the demand side. What I mean by that is what's the product — shape of the product portfolio, what we learned even from the cloud transition, which, as you know, Keith, was similar in the sense it was both a knowledge-intensive and a capital-intensive transition. We needed to have the product portfolio where there was the right mix of, I'll call it, infrastructure meters as well as SaaS applications. So that's the first thing that we are looking at.
And how is that value landing with customers and what's the growth rate. So when I think about what's happening with M365 Copilot as perhaps the best Office 365 or M365 suite we have had, the fact that we're getting recurring customers, so our customers coming back buying more seats. So GitHub Copilot now being bigger than even GitHub when we bought it. What's happening in the contact center with Dynamics.
So I would say — and obviously, the Azure AI growth, that's the first place we look at. That then drives bulk of the CapEx spend, basically, that's the demand signal because you got to remember, even in the capital spend, there is land and there is data center build, but 60-plus percent is the kit, that only will be bought for inferencing and everything else if there is demand signal, right? So that's, I think, the key way to think about capital cycle even. The asset, as Amy said, is a long-term asset, which is land and the data center, which, by the way, we don't even construct things fully, we can even have things which are semi-constructed, we call [cold] (ph) shelves and so on. So we know how to manage our CapEx spend to build out a long-term asset and a lot of the hydration of the kit happens when we have the demand signal. There is definitely spend for training. Even there, of course, we will only be scaling training as we see the demand accrue in any given period in time.
So I would say it's more important to manage, to capture the opportunity with the right product portfolio that's driving value. And on that front, I feel good about the breadth of Microsoft offering, whether it's in consumer side, whether it's on commercial per seat side or on the consumption meters, that's, I think, the fundamental driver.
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Amy HoodCFOMicrosoft
And Keith, I do think — and I really do appreciate how you phrased the question as well because I think the timing and some of the questions you all have had really led to how we were talking even about capital expense in our comments — in my comments today. Being able to maybe share a little more about that when we talked about roughly half of FY2024's total capital expense as well as half of Q4's expense, it's really on land and build and finance leases, and those things really will be monetized over 15 years and beyond.
And they're incredibly flexible because we've built a consistent architecture first with the Commercial Cloud and second with the Azure stack for AI, regardless of whether the demand at the platform layer or at the app layer or through third parties and partners or, frankly, our first-party SaaS, it uses the same infrastructure. So it's long-lived flexible assets. And if you think about it, that way, you can see what we're doing and focused on is building out this network in parallel across the globe. Because when we did this last transition, the first transition to the Cloud, which seems a long time ago sometimes, it rolled out quite differently. We rolled out more geo by geo and this one because we have demand on a global basis. We are doing it on a global basis, which is important. We have large customers in every geo. And so hopefully, with that sort of shape of our capital expense, it helps people see how much of that is sort of near-term monetization driver as well as a much longer duration.
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KW
Keith WeissanalystMorgan Stanley
That's super helpful. Thank you very much.
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Brett IversenirMicrosoft
Thanks, Keith. Operator, next question please.
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Q&A 2/8
OP
Operatoroperator
And the next question comes from the line of Mark Moerdler with Bernstein Research. Please proceed.
MM
Mark MoerdleranalystBernstein Research
Thank you very much. Thank you for taking the question.
And congrats on a strong year. GenAI has been a bit of rollercoaster of a tech over the last year with periods of acceleration, high expectations and the expectations drop as reality kicked in. With Azure growth we've seen this quarter and O365 Commercial, not yet fully visible in numbers even though Amy, you gave us a lot of color on it. Two quick parts to the question. Satya, how should we think about what it's going to take for GenAI to become more real across the industry and for it to become more visible within your SaaS offerings? And Amy, with Cloud, it took time for margins to improve. It looks like with AI, it's happening quicker. Can you give us a sense of how you think about the margin impact near-term and long-term from all the investment on AI? Thank you.
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Satya NadellaCEOMicrosoft
Yes. Thanks again, Mark, for the question. So to me, look, at the end of the day, GenAI is just software. So it is really translating into fundamentally growth on what has been our M365 SaaS offering with a newer offering that is the Copilot SaaS offering, which today is on a growth rate that's faster than any other previous generation of software we launched as a suite in M365. That's, I think, the best way to describe it. I mean the numbers I think we shared even this quarter are indicative of this, Mark. So if you look at it, we have both the landing of the seats itself quarter-over-quarter that is growing 60%, right?
That's a pretty good healthy sign. The most healthy sign for me is the fact that customers are coming back there. That is the same customers with whom we landed the seats coming back and buying more seats. And then the number of customers with 10,000-plus seats doubled, right? It's 2x quarter-over-quarter.
That, to me, is a healthy SaaS core business. And on top of that, some of the things that Amy shared around Dynamic. That's another exciting place for us, which is one, we are gaining share. We are — Dynamics with the GenAI built-in is sort of really biz app, it's probably the category that gets completely transformed with GenAI. Contact centers being a great example. We ourselves are on course to save hundreds of millions of dollars in our own customer support and contact center operations. I think we can drive that value to our customers. And then on the Azure side, you see the numbers very clearly. In fact, I think last quarter is when we started giving you that. You saw an acceleration of that this quarter. One of the other pieces, Mark, is AI doesn't sit on its own, right? So it's just for — we have a concept of design wins in Azure. So in fact, 50% of the folks who are using Azure AI are also using a data meter. That's very exciting to us because the most important thing in Azure is to win workloads in the enterprise. And that is starting to happen. And these are generational things once they get going with you. So that's, I think, how we think about it at least when I look at what's happening on our demand side.
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Amy HoodCFOMicrosoft
And, Mark, to answer the second half of your question on margin improvement, looking different than it did through the last cloud cycle. That's primarily for a reason I've mentioned a couple of times. We have a consistent platform. So because we're building to one Azure AI stack, we don't have to have multiple infrastructure investments. We're making one. We're using that internally first-party, and that's what we're using with customers to build on as well as ISVs. So it does, in fact, make margins start off better and obviously scale consistently.
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Mark MoerdleranalystBernstein Research
Thank you.
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Brett IversenirMicrosoft
Thanks, Mark. Operator, next question please.
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Q&A 3/8
OP
Operatoroperator
The next question comes from the line of Kash Rangan with Goldman Sachs. Please proceed.
KR
Kash RangananalystGoldman Sachs
Hi. Thank you very much and congrats on a great year — fiscal year ending. A question for you, Amy. When you look at the CapEx, how do you ring efficiencies out of the CapEx? You've disclosed that 50% of the infrastructure, the other 50% tech, is very useful. So in other words, do you have to keep growing CapEx at these elevated rates? Or could you slow down CapEx and still get that consistent revenue growth rate in your Azure and Generative AI? That's the main question in my mind? Thank you so much.
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Amy HoodCFOMicrosoft
Thanks, Kash. That's a very good question. There's really two pieces, I think, as I heard your question that I would reflect on. The first is, could we see sort of consistent revenue growth without maybe what you would say is more of this sort of elevated capital expense number or something that continues to accelerate. And the answer to that is yes because there's two different pieces, right? You're seeing half of this go toward long-term builds that Satya mentioned, the pace at which we fill those builds with CPUs or GPUs will be demand-driven. And so if we see differences in demand signal, we can throttle that investment on the CPU side, which we've done for I guess, a long time at this point, as I reflect, and we'll use all that same learning and demand signal understand to do the same thing on the GPU side.
And so you're right that you could see relatively consistent revenue patterns and yet see these inconsistencies and capital spend quarter-to-quarter. The other thing, I would note, Kash, is you'll also notice there's a growing distinction between our CapEx number, and on occasion, the cash that we pay for PP&E and you're going to start to see that more often in this period because it happens when we use leases. Leases sort of show up all at once. And so you'll see a little bit more volatility. I've mentioned it back in my comments before, but I mentioned it again just because you're starting to see that distinction in my comments and hopefully that's helpful context.
SN
Satya NadellaCEOMicrosoft
Just one other thing, Amy, if I wanted to add.
I think as people think about capital spend, I think it's important to separate out leases from build. And when it comes to build, I think it's important for us to think about — we think about it in terms of what's the total percentage of cost that goes into each line item, land which obviously has a very different duration and a very different lead time. So those are the other two considerations. We think about lead time and duration of the asset. Land, network, construction, the system or the kit and then the ongoing cost. And so if you think about it that way, then you know how to even adjust, if you will, the capital spend based on demand signal.
KR
Kash RangananalystGoldman Sachs
Thank you. It was triggered by the jump in CapEx. And as Amy pointed out, you're guiding to accelerating Azure revenue growth rate, which, I guess, follows the CapEx surge. Thank you so much once again.
BI
Brett IversenirMicrosoft
Thanks, Kash. Operator, next question please.
Q&A 4/8
OP
Operatoroperator
The next question comes from the line of Brent Thill with Jefferies. Please proceed.
BT
Brent ThillanalystJefferies
Thanks. Amy, the magnitude to beat this quarter was a little lower than we've seen in the past.
Was there anything unusual on sales cycle that close rates that you saw? Thanks.
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AH
Amy HoodCFOMicrosoft
Thanks, Brent.
Actually, no. As I was talking on the quarter, I mean Commercial bookings were much better than we expected going into the quarter. Commitments were very good execution across both the core sort of annuity renewal motion was good, as expected, the larger long-term commitments were better than we expected. So Brent, I would not say there was anything really unusual in how I thought about what we saw in our commercial execution through the quarter.
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BT
Brent ThillanalystJefferies
Great. Thank you.
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Brett IversenirMicrosoft
Thanks, Brent. Operator, next question please.
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Q&A 5/8
OP
Operatoroperator
The next question comes from the line of Karl Keirstead with UBS. Please proceed.
KK
Karl KeirsteadanalystUBS
Okay. Great. So maybe I'll direct this to Amy. Amy, I know when you set your Azure guidance, you're always looking to meet or beat the high-end. The 30% you put up in the June quarter, amazing number given the scale of Azure, but it did come in at the low end of your range. And I'd just love for you to maybe elaborate on the delta. I guess as I reflect on what you said in your comments.
There's two things that I heard you say. One, it sounded like there's persistent capacity constraints that you think might get alleviated in the second half? And then secondly, you mentioned perhaps some modest softness in Europe. I presume that's a little bit more economic rather than Azure specific. Is that the right way to frame the performance in the quarter? Thank you.
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Amy HoodCFOMicrosoft
Thanks, Karl.
Yes, that's exactly right. Maybe I'll just repeat it, just so people can hear it in my words as well to that 30% to 31% guide for Q4 and coming in at the lower end of 30%. You're exactly right. The distinguishing between being at the higher end or at the lower end, really was some softness we saw in a few European geos on non-AI consumption really made the difference in that number. And we've assumed that going forward into H1 inclusive of my guide 28% to 29% going forward. And then let me separate which was your larger point, which is what are the other factors you see ongoing. Number one, you're right, capacity constraints, particularly on AI and Azure will remain in Q4 and will remain in H1. So hopefully, that's helpful.
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Karl KeirsteadanalystUBS
Yes. Thank you, Amy.
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Brett IversenirMicrosoft
Thanks, Karl. Operator, next question, please.
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Q&A 6/8
OP
Operatoroperator
The next question comes from the line of Brad Zelnick with Deutsche Bank. Please proceed.
BZ
Brad ZelnickanalystDeutsche Bank
Great.
Thank you very much. Amy, with Azure demand, once again greater than available capacity, I appreciate the CapEx investments and the build-out and acceleration you expect in the back half. But as we think about Cloud capacity and AI services specifically, can you talk about both the near-term and long-term strategy around the AI partnerships that you're signing with the likes of Oracle and Cohere, for example? Thank you.
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Amy HoodCFOMicrosoft
Thanks, Brad. Maybe separate a couple of things.
We are — and we've talked about now for quite a few quarters, we are constrained on AI capacity. And because of that, actually, we've, to your point, have signed up with third parties to help us as we are behind with some leases on AI capacity. We've done that with partners who are happy to help us extend the Azure platform, to be able to serve this Azure AI demand. And you do see us investing quite a bit as we've talked about in builds so that we can get back in a more balanced place.
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Satya NadellaCEOMicrosoft
Yes. I mean, to me, it's no different than leases that we would have done in the past. These — you could even say sometimes buying from Oracle, maybe even more efficient leases because they're even shorter date.
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Brad ZelnickanalystDeutsche Bank
Excellent. Thanks for the color.
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Brett IversenirMicrosoft
Thanks, Brad. Operator, next question please.
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Q&A 7/8
OP
Operatoroperator
The next question comes from the line of Mark Murphy with JPMorgan. Please proceed.
MM
Mark MurphyanalystJPMorgan
Thank you very much. With a couple of quarters of Copilot for M365 availability under your belt now, how are you assessing the capability of Copilots to replicate the productivity gains that they've created for developers, which seem to be very high and to do something similar for the broader population of knowledge workers? For instance, you're mentioning the 10,000 feet deals, the repeat purchases, is it possible to eventually see Copilot penetration rate equally high in office as they will be in GitHub?
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Satya NadellaCEOMicrosoft
Yes, that's a great question. In fact, the GitHub design system and the GitHub Copilot workspace design system, which now, for example, you start with an issue, you create a plan, from a plan, you create a spec, or you create a spec and from a spec, you create a plan and then you go operate across the full repo. That's effectively the design system that is getting replicated inside of even the M365 Copilot. And you see this even now — for example, you get an email, you're in sales, you want to respond to the customer.
The data from the email is essentially context for a prompt but you expand by bringing in all of your CRM data, right? So this customer email is in the context of some order, all of the CRM record gets completed in context and a reply gets generated with the CRM data. That's the type of stuff that's already happening. Then you take something like Copilot Studio, you can start even grounding it in more data and then completing workflows. So you could say if this email comes from this customer whose order date is got a particular issue with it.
You can then go and escalate it to somebody else who gets a notification in Teams. And those are the kinds of workflows that are getting built within IT or by end users themselves, what used to be line of business applications to us are Copilot extensions going forward. So we think of this as really a new design system for knowledge and frontline work to drive productivity, which would be very akin to what has happened in software engineering. So when you think about marketing or finance or sales or customer service, we will effectively replicate what you just said, which is the type of productivity we've seen in developers, will come to all of these functions as they think about their work, workflow and workout effect, all being driven by Copilots.
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Mark MurphyanalystJPMorgan
Thank you very much.
BI
Brett IversenirMicrosoft
Thanks, Mark. Operator, we have time for one last question.
Q&A 8/8
OP
Operatoroperator
And the last question will come from the line of Keith Bachman with BMO Capital Markets. Please proceed.
KB
Keith BachmananalystBMO Capital Markets
Hi. Good evening, and thank you for the opportunity to ask the question. I actually wanted to veer towards gaming, if I could, for a second. Xbox content services revenue grew 61%, 58 points held from Activision. So net is about 3 points of growth. How should investors think about the longer-term growth potential in this area? You've made significant investments, including the Activision deal. But how should investors be thinking about the growth potential of the gaming? Or what are the puts and takes to help make considerations here? Thank you.
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Satya NadellaCEOMicrosoft
Yes.
For us, our investment in gaming fundamentally was to have, I would say, the right portfolio of both what we love about gaming and always have loved about gaming, which is Xbox and the content for the console and expand from there so that we have content for everywhere people play games, starting with the PC. So when I think about the Activision portfolio, it comes with great assets for us to cover both the PC and the console. And then, of course, assets to cover mobile sockets, which we never have. So we feel that now we have both the content and the ability to access all the traditional high scale platforms where people play games, which is the console, PC and mobile.
But we're also excited about these new sockets, right? I mean the fact that even in this last quarter, we expanded X Cloud to Amazon TV, I forget the name of what it's called. But that's the type of new access that really helps us a lot, get reach new gamers or the same gamer everywhere they want to play. And that ultimately will show up in that software plus services and transaction revenue for us, which is really our long-term KPI, and that's what we're building towards. And that was strategy behind Activision as an asset. Amy, if you want to add to it?
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AH
Amy HoodCFOMicrosoft
No. I do think the real goal here is to be able to take a broad set of content to more users in more places, and really build what looks more like to us, the software annuity and subscription business. With enhanced transactions and the ownership of IP, which is quite valuable long-term. As Satya mentioned, things where with the ownership of IP, it can be monetized in multiple ways. And I think we're really encouraged by some of the progress and how we're making progress with Game Pass as well with some of the new announcements. Thank you, Keith.
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Closing Remarks
BI
Brett IversenirMicrosoft
Thanks, Keith. That wraps up the Q&A portion of today's earnings call. Thank you for joining us today, and we look forward to speaking with all of you soon.
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Amy HoodCFOMicrosoft
Thank you.
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Satya NadellaCEOMicrosoft
Thank you all.
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Operator Sign-off
OP
Operatoroperator
This concludes today's conference. You may now disconnect your lines at this time. Enjoy the rest of your day.