Everbright Securities Microsoft FY25Q3 Performance Review: Strong Azure Revenue Guidance, Capital Expenditure Decreases Quarter-on-Quarter, AI Cloud Load in Short Supply

Zhitong
2025.05.01 23:51
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Everbright Securities released a report stating that Microsoft exceeded expectations in its FY25Q3 earnings announcement, with both revenue and net profit surpassing forecasts. The revenue guidance for FY25Q4 is also above expectations. FY25Q3 revenue was USD 70.07 billion, a year-on-year increase of 13.3%; net profit was USD 25.82 billion, a year-on-year increase of 17.7%. The guidance for intelligent cloud revenue significantly exceeded expectations, with substantial growth in AI-driven Azure revenue. FY25Q3 capital expenditures decreased quarter-on-quarter, putting pressure on the gross margin of cloud business. The stock price rose 6.69% after hours

According to the Zhitong Finance APP, Everbright Securities released a research report stating that after the market close on April 30, Eastern Time, Microsoft (MSFT.US) announced its FY25Q3 earnings report. FY25Q3 Microsoft's revenue and net profit exceeded expectations, and the revenue guidance for FY25Q4 was higher than expected. The guidance for Microsoft's Intelligent Cloud revenue significantly exceeded expectations, with AI-driven Azure revenue returning to accelerated growth and strong guidance. Additionally, FY25Q3 Microsoft's capital expenditures decreased quarter-on-quarter, and the gross margin of the cloud business was under pressure.

Everbright Securities' main points are as follows:

Event: After the market close on April 30, Eastern Time, Microsoft released its FY25Q3 earnings report. As of 8:00 AM Beijing time on May 1, Microsoft's after-hours stock price rose by 6.69%.

FY25Q3 revenue and net profit exceeded expectations, and FY25Q4 revenue guidance was higher than expected. In FY25Q3, Microsoft achieved operating revenue of $70.07 billion (vs Refinitiv consensus expectation +2.41%, hereinafter referred to as consensus expectation), a year-on-year increase of 13.3%; the company guided FY25Q4 operating revenue of $73.1-74.2 billion, with a median of $73.7 billion, which is 5.5% higher than the consensus expectation. In FY25Q3, Microsoft achieved operating profit of $32 billion, a year-on-year increase of 16%; net profit was $25.82 billion (vs consensus expectation +7.76%), a year-on-year increase of 17.7%.

Intelligent Cloud revenue guidance significantly exceeded expectations, and AI-driven Azure revenue returned to accelerated growth with strong guidance. In FY25Q3, Microsoft's Intelligent Cloud segment revenue was $26.75 billion, a year-on-year increase of 20.8%. The FY25Q4 Intelligent Cloud revenue guidance is $28.75-29.05 billion, with the median exceeding the consensus expectation by 10.4%. In FY25Q3, Azure revenue grew by 33% year-on-year (previous value 31%), with Azure AI contributing 16 percentage points to the growth rate. The company guided FY25Q4 Azure revenue to grow by 34%-35% year-on-year, maintaining the trend of accelerated growth.

Growth rate of productivity and business processes revenue slowed, while more personal computing segments showed steady growth. In FY25Q3, Microsoft's productivity and business processes segment revenue was $29.94 billion, a year-on-year increase of 10.4% (previous value 13.9%). In FY25Q3, Microsoft's more personal computing segment revenue was $13.37 billion, a year-on-year increase of 6.1%, with strong growth in gaming content and services offsetting the decline in hardware revenue, and gross margin increased by 2 percentage points year-on-year.

Capital expenditures decreased quarter-on-quarter, and cloud business gross margin was under pressure. In FY25Q3, Microsoft's capital expenditures were $21.4 billion, a year-on-year increase of 52.9%, but decreased by 5.3% quarter-on-quarter, reflecting fluctuations in data center leasing delivery times, with cash expenditures for PP&E at $16.7 billion; the company maintained its capital expenditure guidance for FY25H2 unchanged. Due to ongoing investments in AI infrastructure, FY25Q3 Microsoft's cloud business gross margin was 69%, a year-on-year decline.

Strong downstream demand for AI, rapid growth in Copilot user numbers. According to the company's earnings conference call, FY25Q3 Azure AI workloads were in high demand, with tokens processed by the Agent development platform Foundry increasing fivefold year-on-year, and the number of Copilot users tripling year-on-year, while GitHub Copilot user numbers increased fourfold year-on-year Security Copilot Agent has 1.4 million customers, a year-on-year increase of 21%.

Earnings Forecast, Valuation, and Rating: Azure's revenue guidance maintains an accelerating growth trend, with continued investment in data center construction supporting strong demand for Azure AI. Considering that macroeconomic uncertainties may impact corporate IT spending, we have lowered the revenue forecast for FY25-27 to USD 277.4 billion / 313.5 billion / 356.5 billion (compared to the previous forecast -0.8% / -1.8% / -3.1%). Taking into account the company's capital expenditures declining quarter-on-quarter and ongoing optimization of operational efficiency, we have adjusted the net profit forecast for FY25-27 to USD 102.5 billion / 111.5 billion / 123.5 billion (compared to the previous forecast +2.0% / +0.3% / -6.0%). The current price corresponds to a PE of 29x / 26x / 24x, maintaining a "Buy" rating.

Risk Warning: Macroeconomic performance below expectations, uncertainty in tariff policies, and AI commercialization progress falling short of expectations

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