MSFT CY4Q24: CY4Q24 In-Line, Risks in CY1Q25 Guidance

We conducted thorough research on MSFT's results and guidance, covering 4Q24 Copilot sales, Copilot Agent and Studio, Azure AI progress, the new GPU IaaS business, a potential TikTok deal, and our Azure growth estimates.

CY4Q24 Copilot Progress

In our previous Deep|Deep Dive into the Growth Challenges Facing Microsoft's M365 Copilot, we detailed Copilot's progress and challenges. This report primarily updates on the 4Q24 situation, with past details in the prior report.

M365 Copilot sales face headwinds as product capabilities disappoint and vertical competition intensifies, making conversions difficult. While FQ2 (4Q24) saw activation and engagement lift notably, we estimate enterprise paid seats remained under 6.5M, up less than 1M Q/Q - the slowest growth in recent quarters, leaving a high hurdle to 15M by FQ4.

Microsoft launched Copilot Chat+Agents on 1/15, including free web-grounded chat and pay-per-response modes without app functionality, mainly targeting non-Copilot license holders - highlighting the challenges in selling Copilot itself.

Under the new re-segmented reporting, M365 Commercial Products and Cloud Services revenue likely grew 13% Y/Y in CY3Q24, with M365 Commercial Cloud +15% Y/Y CC in-line, including ~$425M from Copilot (pro, ex-Studio).