Ask Paul: May 1 ⭐️

Happy Friday! It's Labor Day here in Mexico, but there's no rest for the wicked, so I've pushed myself off an accounting and financial reporting cliff, and the bill has come due. You're welcome to join me for the ride.

"Jim Cramer says the market’s biggest winners all have one thing in common"
They're not Microsoft

🪟 There can be only three, or maybe four
helix2301 asks:

Paul, the $13.2 billion Microsoft pulled in with more personal computing is all Windows operating system, Xbox, Surface devices, and Bing search advertising. If you were to guess how much of that 13.2 billion percent wise is Windows, Xbox, Surface, or Bing advertising revenue. Do you think Windows is still the biggest part? I can’t picture Surface or Xbox being a huge part. I do know a lot of businesses using Bing maps API because cheaper than Google maps, but even that can’t be a billion-dollar business.

The lack of transparency in Microsoft earnings makes all this difficult to assess. But here's what I know.

Back when Microsoft was still fighting antitrust concerns about its proposed acquisition of Activision Blizzard in mid-2023, I wrote an article describing how this would impact the financials. This was 2023, so the most recent data at the time was the first calendar quarter of that year and then the three previous quarters. Basically, Activision Blizzard was averaging a bit over $2 billion in revenues a quarter. So for a company the size of Microsoft, with over $207 billion in revenues over those same four months, the change was minimal, or a bit under $216 billion total. But for More Personal Computing, which was averaging a bit under $14 billion a quarter, or $55 billion or so for that time period, the change was much more significant (by percentage), with the two combined delivering about $63 billion.

Tied to the question below, Microsoft changed how it accounts for revenues from Windows in August 2024, which is after the overview noted above and after the company successfully acquired Activision Blizzard. That's notable because most Windows-related revenues come from enterprise licensing, not PC sales, and with the accounting change, revenues that Microsoft used to attribute to Windows Commercial products and cloud services are no longer part of More Personal Computing. And so the basic math we might have used in 2023 to describe the various parts of More Personal Computing, which were likely out of date at that time, are now completely different. In short, we have to guess.

(Tied to that, too, the account change combined Surface into Windows in what is now reported as Windows OEM and Devices. Surface revenues could skew this.)

The long-time assumption, because this was once known to be fact, is that about two-thirds of Windows revenues came from businesses. My guess is that it's closer to three-quarters now, but let's not muddle this with too many variables. Pre-Activision Blizzard, I would have argued that two-thirds of More Personal...