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Microsoft to report Gaming Revenue, Cloud Services Revenue Growth in next earnings reports

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Published onSeptember 28, 2016

published onSeptember 28, 2016

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Next month will be full of quarterly earning reports for many publicly traded companies. Among them will be Microsoft, which will be reporting their earnings for the first quarter of their Fiscal Year 2017on October 20th.

Investors are sure to pay attention to this earnings report for a few reasons. Since their last earnings report, Microsoft hasissued $20 billion in debt, announceda $40 billion buybackof shares, and plansto increase dividends.

But now,Microsoft Investor Relationshas announced the company’s upcoming SEC Filings will include a few new metrics. These investor metrics help capture various aspects of the company’s performance beyond what’s on the balance sheet and income statement. Some of these metrics include figures like how much Window’s OEM revenue has grown or how many more subscribers have signed up for Office 365.

Three new investor metrics

The first quarter of Fiscal Year 2017 filing will include a total of 20 investor metrics,three of whichare brand new. The newest metrics are Commercial cloud gross margin percentage, Windows Commercial products and cloud services revenue growth, and Gaming revenue.

Commercial cloud gross margin percentage will measure the profitability of Microsoft’s Commerical cloud business. This will give investors insight into the collective profitability of Office 365, Azure, Dynamics Online, and other commercial cloud services.

The next two new investor metrics both fall under Microsoft’s More Personal Computing business. This includes their Windows, Surface, and Xbox businesses. One of the new metrics is Windows Commercial products and cloud services revenue growth. Microsoft says this figure will show how much “all Windows products and services sold through commercial channels” has grown. That will include “Windows Volum Licensing, new Windows cloud services, and other Windows commercial offers aimed at specific customer segments (e.g. Academic).”

Lastly, Microsoft will begin reporting Gaming Revenue. The company defines this as all revenue dollars from “Xbox consoles, Xbox Live service, first party games, and third party game royalties.” This figure should give a clearer picture of how their entire Xbox business is performing, particularly when coupled with Xbox Live active users metric.

So why these metrics now?

These investor metrics certainly help paint a picture of how the company is performing. But just like every company that files earnings reports to the SEC, investor metrics are a selective view of their business unit performance. Results are constructed and chosen by the company itself, and companies always want to put their best foot forward with their financial statements. They also don’t want to give away too much intelligence to their competitors about the inner workings and performance of their divisions.

One notable Microsoft shareholder, former CEO Steve Ballmer,openly criticized the company’s investor metrics, specifically their reporting of cloud revenue. Microsoft has until now liked to boast about the annualized run rate of their cloud revenue. The company has set an ambitious goal to hit$20 billion in annualized cloud revenue. But Ballmer balked at this, noting that just reporting revenue gives no measure of profitability.

It is one thing if revenue is growing incredibly fast. But if costs are growing faster than revenue, or even surpass it in overall terms, then that business most likely isn’t very sustainable. And only reporting the run rate says nothing about how cloud revenue is growing in terms of its costs.

The new ‘Commercial cloud gross margin percentage’ may very well be a concession of sorts to Ballmer’s concerns. Again, as Microsoft describes it, this metric will give “visibility into gross margin contribution from the commercial cloud.” But we’ll have to wait until October 20th to see how investors respond to these new metrics and what these new figures reveal aboutMicrosoft’s growth.

Radu Tyrsina

Radu Tyrsina has been a Windows fan ever since he got his first PC, a Pentium III (a monster at that time).

For most of the kids of his age, the Internet was an amazing way to play and communicate with others, but he was deeply impressed by the flow of information and how easily you can find anything on the web.

Prior to founding Windows Report, this particular curiosity about digital content enabled him to grow a number of sites that helped hundreds of millions reach faster the answer they’re looking for.

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Radu Tyrsina

With KB5043178 to Release Preview Channel, Microsoft advises Windows 11 users to plug in when the battery is low#

Copilot in Outlook will generate personalized themes for you to customize the app#

Microsoft will raise the price of its 365 Suite to include AI capabilities#

Death Stranding Director’s Cut is now Xbox X|S at a huge discount#

Outlook will let users create custom account icons so they can tell their accounts apart easier#

Microsoft to report Gaming Revenue, Cloud Services Revenue Growth in next earnings reports#

Three new investor metrics#

So why these metrics now?#