Factors triggering unearned revenue growth
Microsoft (MSFT) has witnessed strong growth in unearned revenues in the last five quarters, driven by the huge demand for Office 365 on the commercial and consumer levels. An increasing number of Xbox Live subscribers contributed to its deferred revenue growth. The company maintained double-digit growth in all five quarters.
In the last five quarters, the number of Office 365 consumer subscribers increased at a CAGR (compound annual growth rate) of 2.7%. The number of Xbox Live subscribers in the same period grew at a CAGR of 3.2%. Subscriptions from LinkedIn, Skype, and Windows 10 post-delivery support services also led to growth in deferred revenues.
Analysis of unearned revenue growth
In the graph above, we can see the deferred revenue growth for Microsoft in the last five quarters. During this period, the company’s deferred revenue grew at a CAGR of 4.5%.
In fiscal 2Q18, the company’s unearned revenues climbed 4.5% YoY (year-over-year) to $23.8 billion. The unearned revenue from its Productivity and Business Processes unit represents ~47.0% of its overall unearned revenues. The deferred revenues from the unit spiked 14.7% YoY to $11.3 billion, mainly buoyed by its Office 365, LinkedIn, and Skype subscriptions.
The unearned revenues from the company’s Intelligent Cloud unit improved 27.1% YoY to ~$9.8 billion, fueled by huge demand in the cloud space. The deferred revenues from its More Personal Computing unit grew 11.5% YoY to $2.8 billion, triggered by its Xbox Live subscription demand.