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Microsoft’s fiscal third quarter of 2024 was a $61.9 billion revenue quarter powered chiefly by cloud services and subscriptions—not a broad hardware rebound. Azure and Office 365 grew strongly, while Xbox hardware and Microsoft’s broader Devices category declined. But Xbox content and services surged, largely because Microsoft had acquired Activision Blizzard, and Microsoft did not report Surface revenue separately.
What Microsoft meant by Q3 2024
Microsoft’s fiscal Q3 2024 covered the three months ended March 31, 2024; the company announced results on April 25. It was not the third calendar quarter of 2024. Microsoft’s earnings release gives the quarter’s financial results.
The headline results: strong growth across revenue and profit
| Measure | Q3 FY2024 | Year-over-year change |
|---|---|---|
| Revenue | $61.858 billion | +17% |
| Operating income | $27.581 billion | +23% |
| Net income | $21.939 billion | +20% |
| Diluted earnings per share | $2.94 | +20% |
| Microsoft Cloud revenue | $35.1 billion | +23% |
The three reportable segments were not interchangeable with individual products such as Office, Azure, Xbox, or Surface. Intelligent Cloud was the largest segment by revenue; Productivity and Business Processes includes Office alongside LinkedIn and Dynamics, while More Personal Computing includes Windows, devices, and gaming. Segment figures are from Microsoft’s earnings release.
| Reportable segment | Revenue | Year-over-year change |
|---|---|---|
| Intelligent Cloud | $26.708 billion | +21% |
| Productivity and Business Processes | $19.570 billion | +12% |
| More Personal Computing | $15.580 billion | +17% |
Azure led cloud growth, with AI demand and infrastructure costs in view
Intelligent Cloud revenue rose 21%, while Azure and other cloud services grew 31%. Server products and cloud services together increased 24%. Microsoft said AI services contributed seven percentage points to Azure growth; it did not report a standalone AI-revenue figure. The company’s Microsoft Cloud measure is broader than Azure, encompassing services such as Office 365 Commercial, commercial LinkedIn, Dynamics 365, Azure, and other commercial cloud properties. Microsoft’s investor metrics define the measure.
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Growth came with substantial investment. Microsoft reported $14 billion in capital expenditures including finance leases during the quarter, citing cloud demand and AI infrastructure. Microsoft Cloud gross margin was 72%, slightly lower than the year-earlier comparison as the company scaled AI infrastructure. The trade-off is that new capacity can support future demand while weighing on margins as it is built and brought into use. These figures and management’s explanation appear in the April 25 earnings-call materials.
Office grew as customers shifted toward subscriptions
Office Commercial products and cloud services revenue increased 13% (12% in constant currency), with Office 365 Commercial revenue up 15% and paid commercial seats up 8%. At the same time, Office commercial licensing revenue fell 20%. The contrast points to a shift in the revenue mix toward recurring cloud subscriptions rather than a uniform rise across every Office sales channel.
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Office Consumer products and cloud services revenue rose 4%. Management said Microsoft 365 Consumer subscribers reached 80.8 million, up 14% year over year. These Office measures are reported in Microsoft’s earnings release and earnings-call materials.
Xbox hardware fell while content and services rose
“Xbox revenue” needs a qualifier: Microsoft reported a sharp hardware decline alongside much faster growth in content and services. Total gaming also rose, with Activision Blizzard’s acquisition contributing heavily to both increases.
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| Gaming measure | Year-over-year change | Acquisition contribution stated by Microsoft |
|---|---|---|
| Xbox hardware revenue | −31% (−30% in constant currency) | Not stated as a contribution to hardware growth; Microsoft reported a decline |
| Xbox content and services revenue | +62% (+61% in constant currency) | 61 percentage points |
| Total gaming revenue | +51% (+50% in constant currency) | 55 percentage points |
Microsoft’s Xbox content and services category includes first- and third-party games, in-game content, Game Pass and other subscriptions, Xbox Cloud Gaming, advertising, royalties, and other cloud services. Because the acquisition accounted for most of the reported growth in these measures, the 62% content-and-services increase should not be read as 62% organic growth. See Microsoft’s gaming metrics and earnings-call materials.
Surface is included in Devices, not reported on its own
Microsoft did not disclose standalone Surface revenue. It reported a broader Devices category covering Surface, HoloLens, and PC accessories; that category declined 17% (16% in constant currency). Management said Surface demand was slightly below expectations and described a focus on higher-margin premium products. It would therefore be inaccurate to state as a separately measured fact that Surface revenue itself fell 17%. The category and management commentary are documented in Microsoft’s metrics and earnings-call materials.
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Activision changed the picture for personal computing
More Personal Computing revenue rose 17%, but management said Activision’s acquisition had a 15-percentage-point net impact on the segment’s growth. That acquisition effect also shaped the gaming comparisons: Microsoft attributed 55 percentage points of gaming growth and 61 percentage points of Xbox content and services growth to Activision. The segment’s headline increase is therefore not a clean measure of growth in its pre-existing Windows, devices, search, and Xbox businesses. Microsoft’s attribution is in the earnings-call materials.
What Microsoft expected in the following quarter
On April 25, 2024, Microsoft gave guidance for fiscal Q4; these were expectations, not later-reported results. Management forecast Intelligent Cloud revenue of approximately $28.4 billion to $28.7 billion, Azure growth of about 30% to 31% in constant currency, and Office 365 revenue growth of about 14% in constant currency. It expected Devices revenue to decline in the mid-teens, hardware revenue to decline again year over year, and Xbox content and services growth in the high 50s, including approximately 60 percentage points of net impact from Activision. The outlook was presented in the earnings-call materials.
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How to read the quarter
- The largest segment was Intelligent Cloud. Office was an important growth business, but it was not Microsoft’s largest reportable segment.
- Cloud and subscription software supplied the clearest operating momentum. Azure and Office 365 Commercial grew, while Microsoft Cloud revenue reached $35.1 billion.
- Hardware weakness was real but should be stated precisely. Xbox hardware and the broader Devices category declined; Surface was not separately quantified.
- Gaming growth was acquisition-shaped. Activision materially lifted the reported gaming and More Personal Computing comparisons.
- AI was a growth contributor, not a separately disclosed revenue line. Microsoft quantified its contribution to Azure growth, not total AI sales.
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