Microsoft Earnings Analysis: FY2025 (Premium)

Yesterday, Microsoft reported its latest quarterly and fiscal year earnings. But then the software giant delivered a series of surprises in its post-earnings conference call. And so this quarter's earnings analysis is going in a different direction too.

First, the numbers.

Fourth quarter, fiscal year 2025. In the quarter ending June 30, 2025, Microsoft earned a net income of $27.2 billion on revenues of $76.4 billion. Those figures represent gains of 24 percent and 18 percent, respectively, year-over-year (YOY).

Full fiscal year 2025. In the fiscal year ending June 30, 2025, Microsoft earned a net income of $101.8 billion (up 16 percent YOY) on revenues of $281.7 billion (up 15 percent).

By all accounts, a blockbuster quarter and year, though the recent layoffs are a black mark on the company's reputation and a strange asterisk to what should be nothing but a blow-out celebration. So maybe we should start there.
? FY25 layoffs
It's been a tough year for Microsoft employees, with three major rounds of layoffs this calendar year (so far), in January, May, and then early July. We try to forget these things, but layoffs are nothing new at Satya Nadella's Microsoft: A cursory search shows me that there were at least three rounds of layoffs last year--in January, June, and September 2024--as wells, and Microsoft laid off 10,000 employees all at once in 2023. But the tenor of the layoffs shifted abruptly during the first half of 2025.

The 1900 job cuts that Microsoft made in January were ostensibly performance-based, with employees warned in advance that those not meeting internal targets faced possible termination. However, we later learned that this somewhat understandable rationale for layoffs was undercut by a harsh reality: Many underperforming employees who turned things around after being warned were still laid off because the performance time period that Microsoft evaluated stretched back further and included the year before the warning.

This was debilitating and deflating to those who were let go and for their managers and co-workers, and it was the sign of the fear that would soon sweep through Microsoft's employee ranks. And then things escalated in May, when Microsoft laid off 6,000 employees in what the company claimed was "building high-performing teams and increasing agility by reducing layers with fewer managers." But insiders universally told me these were arbitrary and random job cuts, unrelated to performance, and that the emotional toll was deep.

That those cuts came on the eve of Microsoft Build 2025, one of two major in-person events the software giant holds with customers, was unfortunate, timing-wise: As I wrote in Fear and Loathing in Seattle (Premium) and More Fear and Loathing in Seattle (Premium), the employees that Microsoft left behind in the wake of these layoffs were emotionally destroyed by the loss of key team members and friends, and scared by the random and heartless nature of the cuts. I...