Microsoft through charts

On Tuesday, Microsoft was the first big tech giant to report financial performance and they didn’t disappoint. They surpassed the market estimates on both top and bottom lines, as well as provided strong guidance. You can read an overview of the earnings call here. In this post, I’ll look at Microsoft the business through some charts that I hope will be helpful and informative to you.

Microsoft’s annualized revenue is now $185 billion at 20% growth!

Microsoft revenue

It’s highly profitable at 43% operating margin. Its annualized operating income stands at $80 billion

Microsoft's operating income and margin

All three primary business segments have 2-digit YoY revenue growth

Microsoft's main businesses growth

Azure and Cloud attract a lot of attention, but it’s Office and other productivity products that top operating margin

Microsoft's main businesses margin

Cloud is on fire. LinkedIn & Search surpassed the $10 billion mark in annualized revenue. Gaming, the 4th largest business, now has a $20 billion run rate

Microsoft's business lines revenue

Microsoft 365 has 57 million active users though growth is slowing due to the law of big numbers

Microsoft 365 subscriber

Azure’s growth is declining due to its size

Azure YoY revenue growth

LinkedIn quietly increases its active user base every quarter. Enterprise Mobility, Microsoft’s security package, also sees consistent growth

LinkedIn active users and Enterprise Mobility seats

Microsoft Teams sees an increasing adoption among corporations

Microsoft Teams sees an increasing adoption among corporations

Disclaimer: I own Microsoft stocks in my personal portfolio

LinkedIn’s life under Microsoft

In December of 2016, Microsoft paid $27 billion in total for LinkedIn and completed the acquisition. According to the latest annual report, the majority of the acquisition price came from goodwill which Microsoft clarified as primarily synergies gained from the integration of the acquired social network.

Source: Microsoft Annual Report 2019

Interestingly, among intangible assets, Microsoft assigned a little more than $2 billion for the trade names. I am not entirely sure whether it means Microsoft valued LinkedIn’s brand as that price. There seems to be a difference between the two concepts: trade names and trademarks, even though in some cases, the two can be interchangeable.

Source: Microsoft Annual Report 2019

Apparently, during the fiscal year when the acquisition took place, LinkedIn generated $2.2 billion in revenue, but registered a negative operating income

Source: Microsoft Annual Report 2019

Fast forward two years later, LinkedIn increased its revenue by almost 200%, from $2.2 billion to $6.7 billion approximately

Source: Microsoft Annual Report 2019

In terms of members, LinkedIn had 500 million members, 575, 645 and 660 in 2017, 2018, 2019 and Q1 2020 respectively. It’s interesting to notice how Microsoft commented on the primary source of revenue from LinkedIn. LinkedIn’s lines of business include Talent Solutions, Marketing Solutions, and Premium Subscriptions. As of the quarter ended December 31, 2017, most of LinkedIn’s revenue came from Talent Solutions

Source: Microsoft’s SEC Filings

Since the quarter ended March 31, 2018, Microsoft didn’t make such a comment any more. Instead, it has been replaced with “strong momentum across all businesses” or something along that line

Source: Microsoft’s SEC Filings
Source: Microsoft’s SEC Filings

It is not clear whether all lines of LinkedIn’s businesses contribute meaningful revenue now. Given the explosive growth in revenue, it won’t be surprising if that’s the case. After all, multiple firing cylinders are better than one.

Disclosure: I own Microsoft stocks in my personal portfolio

LinkedIn Learning

I have quite mixed feelings towards LinkedIn. The platform seems to be a pretty cool concept, a bridge that connects employers with employees, and companies with potential partners. Somewhere along the line; however, the content on LinkedIn has grown a bit out of control, with excessive quizzes or motivational quotes whose origin no one is certain about. My impression is that job-seeking users only use the platform when they are looking for opportunities and stop all interaction whenever there is no such need. Personally, there were times in the past when I didn’t visit the site for weeks and I believe that I am not alone. Consequently, I am never motivated to be a LinkedIn subscriber.

With that being said, I was excited to read about the latest news regarding LinkedIn Learning.

Per TechCrunch:

Now, with 13,000 courses on the platform, LinkedIn  is announcing two new developments to get more people using the service. It will now offer videos, tutorials and courses from third-parties such as Treehouse and the publishing division of Harvard Business School. And in a social twist, people who use LinkedIn Learning — the students and teachers — will now be able to ask and answer questions around LinkedIn Learning sessions, as well as follow instructors on LinkedIn, and see others’ feedback on courses.

Unlimited access to LinkedIn Learning comes when a person pays for LinkedIn’s Premium Career tier, which costs around $30/month…

The first group includes Harvard Business Publishing (e.g. leadership development courses from Harvard Business School’s publishing arm); getAbstract (a Blinkist-style service that provides 10,000+ non-fiction book summaries plus TED talks); Big Think: 500 short-form videos on topics of the day (these are not so much “courses” as they are “life lessons” — subjects include organizing activism and an explainer on how to end bi-partisan politics); Treehouse, with courses on coding and product design skills; and Creative Live, with courses and tutorials for professionals in the creative industries to improve their skills and business acumen.

In addition to Premium features such as InMail or “See you looked at your profile” or salary comparison, a LinkedIn Premium Career comes with content from other platforms that can be pricey on their own. For instance, Treehouse costs $25/month, getAbstract can go up to the same price as well. Throw in potential costs from other content providers and you’ll see how hard LinkedIn wants to attract users by offering much value. In the same way as Spotify offers students with a combo of Spotify Premium, Hulu and Showtime.

This reflects the importance that Microsoft placed on LinkedIn recently. It was reported that activity on LinkedIn would be one of the factors determining the pay of Microsoft’s CEO next year. Nonetheless, LinkedIn Premium Career subscription looks more intriguing to me now with the new added lineup of 3rd party content.

If you plan to subscribe to an online learning website anyway in the near future, this can be a cool option. I never use any of the added 3rd party platforms, but the perks of LinkedIn Premium Career , especially for graduates, may be valuable.