Microsoft Financial Results of Operations

Devices. Pexels Image.

This page covers Microsoft’s financial results of operations, consisting of revenue, gross profit and margin, operating expenses, operating profit and margin, net profit and margin, and earnings per share.

Let’s look at the financial results!

For other statistics of Microsoft Corporation, you may find more information on this page: Microsoft key stats.

Please use the table of contents to navigate this page.

Insight & Summary of Microsoft’s Financial Results of Operations

Over the period, Microsoft grew revenue at about 13.8% a year, operating profit at 19.5% and diluted EPS at 21.5%. Operating margin widened by 18.2 points. The driver was a shift to Service and other, which now supplies 80.5% of revenue and 76.7% of gross profit. The period splits in two. Until FY2024, both gross margin and cost leverage lifted profitability. Since then, cost leverage has done all the work.

• Growth is service-led. Product revenue has been flat for a decade, at about -0.4% a year, with a one-time step down of 11.0% in FY2023 after the FY2022 peak. Service and other compounded at 27.3% a year and lifted its share of revenue from 26.1% to 80.5%. Its growth has settled at 17–23% since FY2023, versus 25–40% earlier, but on a far larger base. Total growth reaccelerated to 17.8% in FY2026, close to the FY2022 high.

• Gross margin: product is improving, service is diluting. Product gross margin rose from 73.4% to 81.3%, as product cost of revenue has fallen for four straight years while revenue held steady. Service gross margin climbed from 37.4% to a 67.4% plateau in FY2023–FY2024 and has since slipped to 64.7%. Service cost of revenue grew 26–27% in FY2025–FY2026 against revenue growth of 21–23%. Incremental gross margin on service revenue has dropped to about 59–60% in the last two years, from 67–82% in most earlier years. Consolidated gross margin peaked at 69.8% in FY2024 and is now 67.9%. This is its first back-to-back decline in the period, because both the service margin and the mix are moving against it.

• Operating leverage is the offset. Operating expenses grew about 8.1% a year against 13.8% for revenue, taking them from 35.4% to 21.2% of revenue. Sales and marketing contributed most (16.1% to 8.0% of revenue), then R&D (13.2% to 10.7%) and G&A (5.0% to 2.4%). Impairment and restructuring charges disappeared after FY2017. This is why operating margin still rose 2.2 points since FY2024 despite gross margin falling. R&D is the one line still growing close to double digits (9.5% in FY2026).

• Earnings conversion and per-share growth. Net profit compounded at 20.6%, slightly ahead of operating profit, and net margin expanded from 22.5% to 40.3%. FY2018 is the one clear break: net profit fell 35.0% while operating profit rose 20.8%, so a below-the-line charge, most plausibly the one-off tax reform charge, took the net-to-operating ratio down to 47%. FY2019 rebounded by 136.8%. In FY2026, net profit grew 31.3% against 20.8% for operating profit, lifting conversion to 86.2% from 79.2%. The dataset doesn’t itemize why, so I’d treat that extra growth as less repeatable than operating growth. Implied diluted share count fell about 7.1% over the decade but has been almost unchanged since FY2024, so per-share growth now comes from earnings rather than buybacks.

• Structural Takeaway: Microsoft is now a service-driven, high-margin business in which the service line sets growth, gross profit and the margin path. The product line is a stable base with 81.3% gross margin. It brings in under a fifth of revenue and about a quarter of gross profit. Revenue growth in the mid-to-high teens looks sustainable, with service continuing to take share. The changing trend is the margin source.

  Gross margin has turned down, so operating margin expansion now depends on expenses growing well below revenue (7.4% against 17.8% in FY2026). That gap has little room left, since expenses are already 21.2% of revenue and sales and marketing only 8.0%. I expect operating margin to plateau in the high 40s rather than keep adding one to two points a year, unless service costs grow more slowly. If FY2026’s elevated net conversion fades back toward 79–80%, net profit and EPS growth should converge toward operating profit growth of about 20%.

The table below combines all key Microsoft’s financial results of operations metrics into a single view for the latest three fiscal years.

Back To Table Of Contents

Revenue

Back To Table Of Contents

Gross profit

Back To Table Of Contents

Gross margin

Back To Table Of Contents

Operating expenses

Back To Table Of Contents

Operating profit and margin

Back To Table Of Contents

Net profit and margin

Back To Table Of Contents

Earnings per share

Back To Table Of Contents

Credits And References

1. All data presented in this article were obtained and referenced from Microsoft’s quarterly and annual reports published on the company’s investor relations: Microsoft investor relations.

2. Pexels Images.

Disclosure

We may use artificial intelligence (AI) tools to assist us in writing some of the text in this article. However, the data is directly obtained from original sources (usually the quarterly and annual reports) and meticulously cross-checked by our editors multiple times to ensure its accuracy and reliability.

If you find the information in this article helpful, please consider sharing it on social media. Additionally, providing a link back to this article from any website can help us create more content like this in the future.

Thank you for your support and engagement! Your involvement helps us continue to provide high-quality, reliable content.

Back To Table Of Contents