ELAINE Analysis

Microsoft Q1 2023 Earnings Conference Transcript

   

ELAINE Analysis of Microsoft Q1 2023 Earnings Conference Transcript

ELAINE analysis shows the top concerns are: Growth, revenue, and cloud.

Key Focus:

"That included several first-party title launches, partially offset by growth in Xbox Game Pass subscribers ..."

"Xbox content and services revenue declined 3% and increased 1% in constant currency, driven by declines in first-party content as well as in third-party content where we had lower engagement hours and higher... "

"... monetization, partially offset by growth in Xbox Game Pass subscriptions"

    

The Donut Chart shows the proportion of Work-in-Progress outweighs tailwind and challenge.

Challenge in revenue growth and margin in Xbox and cloud:

(growth,margin,xbox_game_pass)

"Xbox content and services revenue declined 3% and increased 1% in constant currency, driven by declines in first-party content as well as in third-party content where we had lower engagement hours and higher monetization, partially offset by growth in Xbox Game Pass subscriptions.. . Segment gross margin dollars declined 9% and 4% in constant currency, and gross margin percentage decreased roughly five points year-over-year driven by sales mix shift to lower margin businesses"

(cloud, margin, year-over-year, dollars)

"Company gross margin dollars increased 9% and 16% in constant currency, and gross margin percentage decreased slightly year-over-year to 69%, excluding the impact of the latest change in accounting estimate, gross margin percentage decreased roughly 3 points, driven by sales mix shift to cloud, the lower Azure margin noted earlier and Nuance"

Outlook on (Growth, Revenue, Operating, Income) :

"At the total company level, we continue to expect double-digit revenue and operating income growth on a constant currency basis. Revenue will be driven by around 20% constant currency growth in our commercial business, driven by strong demand..."

 

The takeaway:

  • Growth in Xbox Game Pass subscriptions but lower engagement could be indicative of a growth that may not be sustainable.
  • Tailwinds and headwinds rank low relevancy in the ELAINE HLA table. This can be an indication of the lack of confidence on growth in these areas.
  • "constant currency" is mentioned in relation to revenue. Cloud is identified as a weakness in relation to the strong dollar. Could this mean international market is impacted by the strong dollar?