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4,900 | MS | 1 | 2,024 | 2024-04-16 09:30:00 | Morgan Stanley | 472,898 | Ted Pick: Good morning, and happy spring in New York. Thank you for joining us. We entered 2024 with optimism, encouraged by improving boardroom confidence and an increasingly positive tone from our institutional and wealth management clients, the quarter was strong. We generated $15 billion of revenue, a 71% efficiency ratio, $2.02 in earnings per share and a 20% return on tangible equity. In a relatively constructive environment, these results highlight the power of our clear and consistent strategy, serving as trusted advisor to our clients, helping them raise, allocate and manage capital. During the quarter, higher asset prices and an improved economic backdrop supported confidence with our wealth management client base. We saw greater activity both in the advisor based and self-directed channels, resulting in higher adjusted margins of 27%. Net new assets grew by $95 billion. Investment Management also generated positive long-term flows in the quarter. Across both wealth and investment management, total client assets grew to $7 trillion advancing toward our $10 trillion goal. As the new issue calendar returned for the first time in a number of quarters, it was great to see us regain our leadership position in equity capital markets. More broadly, we saw building momentum in investment banking, both in our M&A and underwriting pipelines across corporate and financial sponsor clients. [Audio Gap] both generated very solid results to round out a strong quarter in institutional securities. As ever, we remain focused on managing our resources, sweating the income statement and being judicious with our capital. Our CET1 ratio was 15.1%. Our excess capital position allows us to support our clients, invest in our businesses and return capital to our shareholders, particularly as regulators continue to evaluate Basel III endgame. Additional regulatory clarity and a sustained capital markets recovery should have a multiplier effect across our global franchise, further unlocking the unique power of our integrated |
4,901 | MS | 1 | 2,024 | 2024-04-16 09:30:00 | Morgan Stanley | 472,898 | recovery should have a multiplier effect across our global franchise, further unlocking the unique power of our integrated firm. I wanted to touch on the topic of client onboarding and monitoring in the wealth business with 3 short observations. First, this quarter's wealth management results speak for themselves with record revenues and strong metrics across the board, including strong margins and very strong net new assets. We are really pleased with this terrific performance and we are going to keep ongoing. Second, this is not a new matter. We've been focused on our client onboarding and monitoring processes for a good while. We have ongoing communications with our regulators, as all the large banks do. As James said in January, we want to ensure we continue to be world class in every aspect of this growing business. And third, to be clear, this is about processes. We have been spending time, effort and money for multiple years, and it is ongoing. We've been on it. And the costs associated with this are largely in the expense run rate. To conclude, the first quarter of 2024 aligns with the goals outlined in the January strategy deck: $15 billion of revenue, a 71% efficiency ratio, $2 of earnings, $7 trillion of client assets, and a 20% return on tangible. We have strong backlogs and momentum in every part of the firm. While the pipelines are healthy, there remains a backdrop of economic and geopolitical uncertainty. Our job is to generate these kinds of durable results on a consistent basis. I'm very optimistic what lies ahead for Morgan Stanley. And on behalf of our 2,300 Managing Directors and 80,000 employees, say to those listening to the call, we will deliver an integrated firm to clients and shareholders that is unmatched in both its integrity and in its intensity. Now, I'll turn it over to our excellent CFO, Sharon Yeshaya to discuss the quarter in more detail. |
4,902 | MS | 1 | 2,024 | 2024-04-16 09:30:00 | Morgan Stanley | 472,898 | Sharon Yeshaya: Thank you, and good morning. In the first quarter, the firm produced revenues of $15.1 billion. Our EPS was $2.02 and our ROTCE was 19.7%. Our model is working as intended. The first quarter results demonstrate the strength of our scaled business and an improving backdrop. Benefits of durable revenues, particularly asset management fees in the wealth management business, stronger capital markets and a continued focus on managing the full income statement, all contributed to results. The firm's first quarter efficiency ratio was 71%, illustrating the inherent operating leverage in the model and our ongoing efforts to consolidate our expense base following multiple years of integration. Efforts are evidenced by the year-over-year reduction in professional services and marketing and business development spend, lower legal expenses further supported the improvement in efficiency ratio. Now to the businesses. Institutional securities revenues of $7 billion were up 3% versus the prior year, reflecting strong performance across businesses. First quarter revenues underscore the power of the integrated firm as our cross divisional collaboration positioned us to capitalize on market opportunities. The geographical breadth continues to distinguish our franchise and puts us at the center of client activity as the backdrop improves across regions. Investment banking revenues were $1.4 billion for the first quarter, up 16% from the prior year. A pickup in both equity and fixed income underwriting supported results, offsetting the year-over-year decline in advisory. Leading indicators continued to progress positively, including the preliminary reemergence of sponsor activity. Advisory revenues of $461 million reflected a decline in completed M&A transactions. Equity underwriting revenues of $430 million more than doubled versus the prior year as IPO markets reopened for most of the quarter alongside conducive markets for follow-ons. Our global reach supported our ability to lead cross-border transactions, and |
4,903 | MS | 1 | 2,024 | 2024-04-16 09:30:00 | Morgan Stanley | 472,898 | alongside conducive markets for follow-ons. Our global reach supported our ability to lead cross-border transactions, and we regained our premier leadership position in equity underwriting lead tables as global market volumes picked up. Fixed income underwriting increased year over year to $556 million, results were driven by strength in investment grade and noninvestment grade bond issuance as clients took advantage of tighter credit spreads. Looking ahead, we expect the steady build of this business to continue. We are encouraged by the health of the advisory and underwriting pipelines. While the uncertainty of the rate path and geopolitical developments may impact the near-term conversion of pipeline to realized, conditions should improve over time and the underlying trends suggest that confidence is increasing. We remain focused on expanding our reach through opportunistic hires, particularly as we continue to see diverse pipeline and increased sponsor activity. Turning to Equity, we continue to be a global leader in this business. Revenues were strong increasing 4% from the prior year to $2.8 billion. Results were supported by performance in derivatives and cash, and the franchise benefited from the scale of our prime brokerage business. Cash revenues increased year-over-year, reflecting broad based strength in equity markets across the region. Performance in Japan was particularly strong supported by higher volumes. Our increased coverage augmented by our longstanding and unique partnership with MUFG should be supportive over time. Derivative revenues were robust as the business navigated the market environment well and client activity was strong. Prime Brokerage revenues were solid as client balances increased back towards all-time highs on higher market levels. Results reflect the mix of client balances and narrower spreads. Fixed income revenues were $2.5 billion results declined slightly compared to the strong result last year. Recall, last year's result benefited from increased client engagement on |
4,904 | MS | 1 | 2,024 | 2024-04-16 09:30:00 | Morgan Stanley | 472,898 | slightly compared to the strong result last year. Recall, last year's result benefited from increased client engagement on the back of idiosyncratic events, including those related to the U.S. regional banks. Client demand for corporate solutions acted as a partial offset, reflecting the strength of our integrated franchise. Macro and micro revenues declined modestly year-over-year on lower volatility and client activity, which resulted in less transactional flow. Results in commodities increased year-over-year, supported by higher revenues in the North America Power and Gas business. Turning to Wealth Management. The business delivered strong results across all key metrics, demonstrating the continued power and differentiation of the engine we have built. Record revenues increased from the prior year to $6.9 billion driven by record asset management fees from both a rising market and ongoing success in migrating clients to advisory relationships to better serve their needs. Transactional revenues, excluding DCP, were also strong as retail sentiment improved alongside institutional investors. Importantly, net interest income remained in line sequentially. Pre-tax profit was $1.8 billion and the PBT margin was 26.3%. Together, DCP and the FDIC special assessment impacted the margin by approximately 115 basis points. The results highlight the inherent operating leverage embedded in the business, particularly as revenues rise on the back of cumulative strong fee-based flows as clients invest more in higher beta assets and transactional activity rebounds. Net new assets for the quarter were strong at $95 billion with contributions from multiple channels including our family office offering. Over time, our ability to deliver unique solutions to clients should continue to attract assets and lead to share capture. Fee-based flows of $26 billion were strong. Within fee-based flows this quarter, we saw particular strength from the migration of assets from the advisor led brokerage accounts to fee-based accounts. This |
4,905 | MS | 1 | 2,024 | 2024-04-16 09:30:00 | Morgan Stanley | 472,898 | we saw particular strength from the migration of assets from the advisor led brokerage accounts to fee-based accounts. This demonstrates that over time, assets migrate through the funnel into recurring revenue generating accounts. Fee-based assets now stand at over $2 trillion. Asset Management revenues were $3.8 billion, up 13% year-over-year, primarily reflecting higher market levels and the cumulative impact of strong fee-based flows. Transactional revenues were $1 billion and excluding the impact of DCP, were up 9% versus the prior year. The first quarter's results were driven by client engagement across products, including record activity in structured products. Investments in our platform allow us to support increased client demand. Bank lending balances were $147 billion, up slightly quarter-over-quarter, reflecting modest growth in mortgages. Total deposits of $347 billion were roughly flat quarter-over-quarter as the decline in sweep balances was offset by continued demand for our savings offering. While sweep balances were down on a spot-to-spot basis, average sweeps were roughly in line with last quarter, broadly consistent with our modeled expectations. Net interest income was $1.9 billion flat to the fourth quarter's results, consistent with our guidance. The moderate increase in average deposit cost was offset by several factors, including the reinvestments of assets at higher market rates. Looking ahead to the second quarter, the deposit mix will continue to be the primary driver of NII. Assuming the current forward curve and that our assumptions around client behavior materialize, we would expect NII in the second quarter to again be roughly in line with the first quarter. Our strategy is working. We have a clear path to $10 trillion in client assets across wealth management and investment management. We remain focused on supporting clients on their path to advice, deepening existing client relationships and using our scaled platform to achieve sustainable 30% pretax profits over time. Investment |
4,906 | MS | 1 | 2,024 | 2024-04-16 09:30:00 | Morgan Stanley | 472,898 | existing client relationships and using our scaled platform to achieve sustainable 30% pretax profits over time. Investment Management reported revenues of $1.4 billion increasing 7% versus the prior year. Results reflect higher asset management revenues, which increased 8% year-over-year, driven by growth in average AUM on higher market levels. Total AUM increased to $1.5 trillion, long-term net flows were strong at $7.6 billion inflows were driven by strengths in alternatives and solutions and reflect the benefits of our diversified product offering. Within alternatives and solutions, demand for parametric customized portfolios was robust as retail clients, including our own wealth management clients, allocated investments to Parametric's equity based products, underscoring the value of the integrated model. Flows were further supported by global interest in our active fixed income strategies. Liquidity and overlay services had out close of $12.9 billion. Performance based income and other revenues were $31 million. Gains in U.S. private equity and private credit offset lowered accrued carried interest in Asia private equity and real estate demonstrating the benefits of a global diversified platform. We are seeing the benefits of ongoing investments in this business. We remain focused on customization, private credit and our global distribution. Parametric, in particular, has allowed us to deliver the integrated firm, evidenced by the ongoing demand from our wealth management client base. Turning to the balance sheet. Total spot assets were $1.2 trillion. Our standardized CET1 ratio was 15.1%, down 14 basis points from the prior quarter. Standardized RWAs increased quarter-over-quarter as we actively supported our clients in more constructive markets. We continue to deliver our commitment to return capital to our shareholders, buying back $1 billion of common stock during the quarter. Our tax rate was 21% for the quarter. The vast majority of share based award conversion takes place in the first quarter |
4,907 | MS | 1 | 2,024 | 2024-04-16 09:30:00 | Morgan Stanley | 472,898 | Our tax rate was 21% for the quarter. The vast majority of share based award conversion takes place in the first quarter resulting in a lower tax rate. We continue to expect our 2024 tax rate to be approximately 23%, which similar to prior years will exhibit some quarter to quarter volatility. The first quarter is clear evidence that as the backdrop improves, our franchise is strategically positioned to capture upside as it was designed to do. With client assets at a record of $7 trillion across Wealth and Investment Management, we are on strong footing. Our Wealth Management business continues to focus on growth as well as supporting our clients with advice in delivering our differentiated offering, and our institutional franchise is supported by our scale and our global footprint. This combined with the build of the investment banking pipelines and market confidence provides us with momentum to deliver on our objectives over time. With that, we will now open the line up to questions. |
4,908 | MS | 1 | 2,024 | 2024-04-16 09:30:00 | Morgan Stanley | 472,898 | Operator: [Operator Instructions] We'll move to our first question from Glenn Schorr with Evercore.
Glenn Schorr: I appreciate you not running away from a sensitive subject. I'm going to push the envelope and just ask one follow-up if possible on the wealth matter. I wonder if you could size the non-U. S. wealth piece whether it be in client assets or revenue for us. And correct me if I'm wrong, if that's the focus? And then more importantly, do you think obviously, you had a pretty darn good quarter. So, do you think this impacts any day-to-day or your ability to grow and onboard clients in the future? That's my real main question.
Sharon Yeshaya: I think it's a great question, Glenn. Happy to take that and just follow-up on exactly what Ted said, which is as you said, the results really speak for themselves. This is a phenomenal business. We had record revenues and we're in a great position. We have strong margins, strong net new assets, and no, there are no strategic changes to our business. There is no changes in our ability to do business, and we're extremely confident in our ability to grow and to deepen the relationship with the breadth of firm offerings that we have to serve our clients. Specific to your question on the international business, it is small.
Operator: We'll move to our next question from Ebrahim Poonawala with Bank of America.
Ebrahim Poonawala: Maybe Ted for you, as we think about, so it was a strong quarter for Investment Banking Underwriting. There seems to be a fragility to the macro outlook based on what how rates have behaved on the back of inflation, geopolitics? Just give us a sentiment check of when you're talking to your corporate clients, like how resilient do you see the investment banking sort of trends and the sort of desire and appetite for corporates to engage in either DCM, ECM or M&A, large M&A activity as we look into sort of later in the year into the U.S. Elections? |
4,909 | MS | 1 | 2,024 | 2024-04-16 09:30:00 | Morgan Stanley | 472,898 | Ted Pick: The pipeline is clearly growing. It's growing across sectors. It's growing on a cross border basis. There are some who will be willing to take the regulatory risk at this point in the cycle. And there is activity that we will see both from the financial sponsor community and the corporate community will effectively be bidding with and against each other for assets. This is a moment when most want to purify their business model or grow. And that scaling needs to take place now that the effects of COVID and supply chain are in front of us and geopolitics continue to be on our minds, it is not surprising that the C suite wants to act. So I think we are in the early innings of a multiyear M&A cycle. On the back of that, we should continue to see all kinds of underwriting. What was interesting about this ECM quarter where we had real success was that it was a combination of IPOs from the Valley, capital raises from industrial companies, regional trades, cross border unlocks. It was the whole potpourri of offerings and we've also begun to see the beginning of event financing in the high yield and leverage loan market. So I'm feeling good about this being early to mid-cycle for the classic investment banking capital markets business around the world. And as you know, we are very active in Japan where we think activity will be heightened for years to come.
Ebrahim Poonawala: And just one quick follow-up Sharon, on the wealth management NII and sweep deposits. I think the sense is that we're getting to a bit of a bottom on NII. Is that an accurate characterization? And should we stop worrying about a big cliff event where NII declines meaningfully from where we trended? |
4,910 | MS | 1 | 2,024 | 2024-04-16 09:30:00 | Morgan Stanley | 472,898 | Sharon Yeshaya: I welcome the day where I stopped getting questions on NII. I would characterize this, it's now the third quarter in a row that I've said that our suite models and the client behavior is following client expectations. It does feel as though we are reaching that frictional level of cash. Of course we'll have to wait and see how things play out, but broadly speaking it feels as though like I said we are at a place where you have what we would say is inter quarter volatility associated with things that might be T-bills maturing, people putting things in markets. But that again is frictional levels of cash rather than large changes or movements in real client behavior, which is what you saw 2 years ago in the summer when we saw the large move in rates, which was a one off event, and then you had again a very large event with the regional bank movements in the first quarter of last year. So those are very specific events that we can look at and since then, like I said, we have been working with our modeled expectations.
Operator: We'll move to our next question from Steven Chubak with Wolfe Research.
Steven Chubak: So maybe just starting off on the expense outlook. We saw some good progress on the expense front and the KPIs are encouraging. Headcount was down year-on-year. Comp and non-comp surprised positively in ISG and Wealth. And I was hoping you could just speak to your efforts to rationalize or optimize the expense base. And with IB and Wealth fees expected to ramp consistent with the M&A commentary, Ted, that you cited, how should we be thinking about incremental margins as these businesses and particularly fees start to grow? |
4,911 | MS | 1 | 2,024 | 2024-04-16 09:30:00 | Morgan Stanley | 472,898 | Sharon Yeshaya: Certainly, let's take just the expense big picture and we obviously disclosed the SEC drivers of expenses, I called them out. We've had multiple years now where we've been looking to integrate multiple acquisitions, and as we've come out of that we've been able to reevaluate our expense base. And I've talked about it in different pieces of our earnings call, many times I've mentioned space. You can see even in the lines around occupancy in the actual disclosures, you can see bump ups in spaces where you're taking write offs down in space and then it begins to trend down again. So we're making big picture decisions around what do we actually need and where do we want to invest those growth drivers as we move forward. So consolidating the marketing dollars and figuring out what is the best use of those marketing dollars, consolidating professional services, how do we actually want to deploy full time hires in those growth objectives. So in my prepared remarks, we talked about 2 things. We talked about taking expenses down in certain line items, but we also discussed investments, right. I talked about the fact that we're looking at opportunistic hires in M&A. We've discussed a lot about investing in parametric and technology. We've been giving technological tools to our advisors and investing in the business. So it's a push pull and it's making sure as Ted said that we're sweating the income statement and we're thinking about our resources efficiently and durably as we move forward through the cycle. |
4,912 | MS | 1 | 2,024 | 2024-04-16 09:30:00 | Morgan Stanley | 472,898 | Ted Pick: What I'd add to that is if you just sort of had an intangible sense of what we talk about at our leadership meetings, our operating committee of a dozen people and the next group, the management committee of about 3 dozen and then their leadership teams. I think it's fair to say Steve over the last 5 years, a large chunk of time was spent talking about capital efficiency, how we can optimize those toggles and of course with Basel III endgame pending and the annual CCAR process ongoing. We, of course, continue dedicate time to that. But the C change over the last number of quarters and it is accelerated now into 2024 is we're actively talking about the income statement, about delivering earnings growth, earnings momentum that obviously then ties into the returns on capital that we were able to generate this quarter. But we're looking to make investments, strategic investments in top human capital now and then when it comes about, but we're being pretty judicious about that. This is a great platform and we have a great team, but we need to be running this thing super efficiently. And that is why reiterating the efficiency ratio of 70% in January was so important and that we put up 71% this quarter where it was a generally constructive environment. I think I called it a relatively constructive environment, but there's clearly more operating leverage to be had when you get to the higher brackets of ISG and then as you move to the funnel of wealth. So the focus on generating that operating leverage and keeping the income statement really tight is very much on the minds of the leadership team. |
4,913 | MS | 1 | 2,024 | 2024-04-16 09:30:00 | Morgan Stanley | 472,898 | Steven Chubak : That's great color. And just for my follow-up, relating to the wealth management margins, unpacking some of the different component pieces, given continued strong fee momentum, nice to see the inflection in NNA too. It sounds like NII is close to stabilizing just given some of the key drivers and inputs. And the focus on efficiency just throwing all of that in the blender does suggest that this 26% is probably a reasonable jumping off point and you can build off that base, but I was hoping you could maybe provide some context around that? |
4,914 | MS | 1 | 2,024 | 2024-04-16 09:30:00 | Morgan Stanley | 472,898 | Sharon Yeshaya: Well, what I would say is that we put out our goals in the last strategy deck and we're obviously making progress towards those goals. When you think about what gets you to 30%, the framework that we've offered the investment community is that there is sort of 3 parts to it. The first is migration to advice, the second and really the monetization of the funnel will go through this. The second when you think about it is solutions and products that we're offering, and then the third is the benefits of scale. And what was encouraging about this quarter is that all three of those things happened. The first being the fee based flows that we saw at $26 billion came from brokerage accounts. They came from people taking money that was already in the channel that we said will eventually be deployed, and it is being deployed and that's what you're seeing here. If you look back, it's a, that particular transition, that conversion is at a 2-year peak. Again, encouraging color, Steve. The second piece, solutions, products, differentiated offering. I called out structured products. People have interest in products, as Ted said, as markets begin to improve, those could be new issuance, that can be derivatives, that can be solutions through structured notes. That's what we're seeing beginning to happen here. So yes, again, an encouraging sign. And the third is that we continue to gain the benefits of scale and operating leverage. So all three things are working, of course there is room to run, but what we're trying to do is make sure that we also have the right tradeoffs between investing in the business, giving ourselves room for technology, and being able to build a 30% margin for sustainable business and durable revenues over time.
Operator: We'll move to our next question from Brennan Hawken with UBS. |
4,915 | MS | 1 | 2,024 | 2024-04-16 09:30:00 | Morgan Stanley | 472,898 | Operator: We'll move to our next question from Brennan Hawken with UBS.
Brennan Hawken: I'd love to start with a question on NII. I know I've asked this in the past, but we saw stability in the Wealth Management NII, which Sharon you've spoken at linked about both from this and in fact, but we did see the firm wide NII dip again and it was the fourth quarter where the firm wide NII declined. So could you explain how those diverged and maybe what caused some of that divergence?
Sharon Yeshaya: Sure. I think we've talked about it before, Brennan. But I'm happy to talk about it again and highlight that the reason that we point you to the wealth management NII is it's a business driven NII. When we look at the trading NII and we look at firm NII, it really depends on the products that you have, where you're booking them, what you're using as your funding sources. That falls into the various pieces of the trading revenue. So we call, we focus you in from our disclosures really on the wealth management NII when that NII is being driven by a business concept rather than just where you might be booking certain trading trades.
Brennan Hawken: Is there something going on in the institutional NII that would cause sort of steady declines, and with those specific products that maybe might be a trend that we could explore a little bit?
Sharon Yeshaya: No, I would really step you back and tell you that that's not how we manage the business and the trading revenue is going to fall where the trading revenue falls based on the products that we transact in that quarter. And the wealth management revenue, I've given you the drivers with the deposits, with interest rates, with spreads and with reinvestment and really two separate things that you should looking at.
Operator: We'll move to our next question from Mike Mayo with Wells Fargo Securities. |
4,916 | MS | 1 | 2,024 | 2024-04-16 09:30:00 | Morgan Stanley | 472,898 | Operator: We'll move to our next question from Mike Mayo with Wells Fargo Securities.
Mike Mayo: You had big year-over-year growth in Wealth Management client assets up by about 20%, but the Wealth Management revenues increased by 5%, still decent growth, but it seems like a little disconnect there. So I'm wondering what kind of wealth management client assets you're growing?
Sharon Yeshaya: Certainly. So when you're growing the wealth management client assets, it's going to be all sorts of places. Like I said, we begin to see assets, they can come in actually in the brokerage side. And over time they will migrate or can migrate based on the client preferences into the advice side. Those different assets are going to have different fees associated with them. For us it's about growing the funnel, Mike, and then beginning to see this movement towards advice. Now I'd also point out that once you're in the advice led channel, even if you're in the fee-based channel, you might not directly be in the S&P. There is a composite, there might be preferences to be in fixed income products, there might be preferences to be in equity products. But for us it's about building sustainable durable revenue over time. First, you bring in the clients and the participants, we've seen the participants grow. Then you bring in the assets. We've seen the assets grow. That then comes into the brokerage accounts, which eventually moves into the advice-based accounts, and we continue to see great trends in the advice driven model, in fee-based assets and the advice the asset management revenues. The asset management revenues, Mike at a record high, so I would just highlight that as well as proof point that this model is working. |
4,917 | MS | 1 | 2,024 | 2024-04-16 09:30:00 | Morgan Stanley | 472,898 | Mike Mayo: And then just one follow-up for Ted. Ted, I think your outlook for the industry capital markets was about as bullish as we've heard yet. I think you used the word potpourri. IPOs in the valley, cross border by sector, financial sponsor, Japan, highest in years, event financing, specifically, what are your backlogs? How do they compare with last quarter? And just one more time, the level of your conviction that this time is for real, because there's been a lot of false starts the last 2 years? |
4,918 | MS | 1 | 2,024 | 2024-04-16 09:30:00 | Morgan Stanley | 472,898 | Ted Pick: Yes, I think it's a reasonable question. The backlogs are all up. I think it will be a slow march back. People are not going to jump into some of the speculative paper that we saw during the SPAC period clearly. But the receptivity to recent IPOs that were high quality was quite impressive, quite broad interest among investors. The need to execute on cross-border M&A is here. It's for many companies an existential reality. Their supply chains have been disrupted by 2 major global conflicts and they need to near shore and make the trade off, which means they need to potentially bolt on piece of supply chain that's in front of them. They may need to take regulatory risk. There may need to be structuring and financing advice around that so called solutions where we think we're strong. The other motivating piece, Mike, is and I do think there's going to be growing consensus on this. The financial sponsor community is sitting on product that has a 3, 4, 5-year life as a private company ready to come out one way or the other, either through a public offering or to be sold in the private markets. That is the best way for the financial sponsor community to return capital to their LPs and keep the thing going with raising ever big funds. So there will be a competitive dynamic I believe between the financial sponsor and corporate community with respect to assets that are available, whether they are public or private in order to continue to create value for their LPs or shareholders. The fact that the U.S. Economy continues to grow, that China is weaker, that parts of Europe are weaker, highlights the fact that people indeed want to get even more exposure to the U.S. With respect to Japan, what's interesting there is most of our client base are both buyers and sellers of assets, which is to say they're sitting on enormous yen denominated deposits, but they wish to grow the economy. So that is a market obviously where we're active in the financial sponsor and corporate communities both in and out will continue to |
4,919 | MS | 1 | 2,024 | 2024-04-16 09:30:00 | Morgan Stanley | 472,898 | is a market obviously where we're active in the financial sponsor and corporate communities both in and out will continue to be. So, I am quite bullish about the full investment bank capability for those that have a global reach. It could take several years and have some lumpiness along the way. But I think the next 3, 4, 5 years will be quite active. |
4,920 | MS | 1 | 2,024 | 2024-04-16 09:30:00 | Morgan Stanley | 472,898 | Operator: We'll move to our next question from Dan Fannon with Jefferies.
Dan Fannon: I'm hoping you could provide an update on overall client cash levels within wealth and how you think about the revenue opportunity as that cash is eventually redeployed?
Sharon Yeshaya: Sure. So we did see the percentage of client cash. So we've given you I think 22% in the advisory channel is now down to, say, 21%, 20% levels depending on what channels that you're looking at. But that, I would say, is not a function of the actual cash levels coming down, but rather that the equity markets have risen, so just to be clear in terms of the actual mix. The reason I bring up those percentages is they are still high relative to the pre-COVID historical levels of, say, 17%, 18% that we've given on previous calls. So there is still room to see the deployment of cash over time into the markets.
Dan Fannon: Understood. And as a follow-up, in the release you mentioned about half of the flows came from your family office offering. Not sure we've heard that stat before or so I was hoping you could bring in, some provide some context in terms of the size of that business for you? And then also just the mix of flows more broadly in terms of the channels, if you could provide a few more specifics in terms of the percentage breakdown? |
4,921 | MS | 1 | 2,024 | 2024-04-16 09:30:00 | Morgan Stanley | 472,898 | Sharon Yeshaya: Absolutely. I'm so glad you asked, as it relates to the family office offering because we have been talking about it for some time. We launched and we really formally enhanced our family office offering in 2021. We discussed it on some of our earnings calls as a place where you could begin to see the integrated firm, and by that I mean a way to offer our wealth management clients different solutions from institutional securities. So our fund management products, where you're actually able to look at your portfolio from a more integrated basis the way that you would as an institutional client. As we begin to offer new solutions to our clients, these are more ways to get touch points with different and deepen different client relationships and bring them on board. So this is an example of that. The reason we pointed out is also to highlight to you that there are lumpy flows that come through these channels. And so when we say these flows can be lumpy, there are different sales channels across the offering and those different channels have different sales cycles and so therefore you will see ins and outs of various pieces of NNA over time, but in this particular quarter and over the long-term history we have seen a very diversified set of channels. We have the workplace, we obviously have the advice-based relationship, different pieces of stock plan, et cetera that come in through the channel and there is diversification there. |
4,922 | MS | 1 | 2,024 | 2024-04-16 09:30:00 | Morgan Stanley | 472,898 | Ted Pick: Yes. What I'd add to that is, to Sharon's point on integrated firm, we have this Sharon made reference to this gem of a business that we have in the institutional equities division called Fund Services, which caters to alternative asset managers and effectively does their documentation work and effectively all of the release to their LPs. The question that has been asked over the last number of years is, when some of these folks go on to open their family office and manage their own wealth? What about having a product that has the feel of an institutional product from when they were running their asset manager for their family office or for related business. So the folks in Fund Services got together with the folks in wealth management who run our outsourced CIO product and they effectively came up with a mousetrap that gives the look of an institutional product for folks who are very much in the ultra-high net worth category. And this helps work towards a piece of the wealth bracket that we've all been focused on over the last number of years, which is the very high net worth space, which is very competitive. But in bringing together some of the capability and kit from the equities business over to the wealth business and have them work together with the founder in her next life managing a family office. It's actually a nice seamless way to keep the funds in house and to deliver institutional style capability to clients. So this is something we are putting our foot on the accelerator on and is a great example of our equities division and the wealth management folks are working hand in glove to deliver something for clients.
Operator: We'll move to our next question from Devin Ryan with Citizens JMP. |
4,923 | MS | 1 | 2,024 | 2024-04-16 09:30:00 | Morgan Stanley | 472,898 | Operator: We'll move to our next question from Devin Ryan with Citizens JMP.
Devin Ryan: A question just on trading. Obviously, results have just been incredibly resilient at a high level. And I know you all have spoken about both market share opportunities for Morgan Stanley, but then there's still this kind of expansion of the overall industry wallet. So love to maybe just hit on that second point. And when you think about that wallet opportunity, the expansion of the wallet, what are some of the biggest opportunities in kind of the growth out rooms? I think a lot of us are sitting here saying results have been phenomenal. How can they continue to improve from here?
Sharon Yeshaya: Sure. I'll take that. When you think about the expansion of the wallet and consider where we came from and where we are now, as more and more of the corporations and coverage of the corporations is becoming more integrated, there are many solutions that a bank such as ourselves can offer, be that from a global perspective, if you think about where rates are as just a tangible example, interest rate hedging that you can offer corporations as they think about transactions. There are different types of foreign exchange transactions that you could think about when you're looking at M&A or you're looking at other corporate deals that you have to do in house for a global franchise. So there are corporate solutions that you see, we expect to see growth in from a wallet perspective, and there's also financing where you have different types of markets and channels that are growing, private credit being an example. We're financing different assets by different types of sponsors are places where we could see opportunities for a wallet share growth more broadly. |
4,924 | MS | 1 | 2,024 | 2024-04-16 09:30:00 | Morgan Stanley | 472,898 | Ted Pick: And what I would add to that is, we're in the middle of the PE ecosystem. With respect to M&A financing risk, if you ask a number of the asset managers, both real money and alternative asset managers, they would say we are a partner of choice. So opportunity exists within credit, where there's a big focus on the financing side. It's obviously stable revenue and we're getting after some of the opportunities that lie across fixed income and inside of our new issue business to originate structure, finance credit, of course, a focus on private credit and then in equities to continue to expand our prime brokerage capability and to build out derivatives. So this ecosystem around the financial sponsors who know our firm very well with all of the integrated firm capability, this is a space and a client base that we are focused on along with, of course, our leading strategic clients on the corporate side.
Devin Ryan: And then a follow-up just on the debt capital markets outlook, obviously very strong quarter. We have heard a little bit about maybe some pull forward, just on the year in terms of people front loading. And so, just want to get a sense of whether you feel like that may play down as well for Morgan Stanley. And then when you think about the pipeline for debt underwriting, I appreciate that deals come together quickly, so there's maybe not as much of a formal pipeline. But is the tone there similarly strong is what you're seeing for M&A and equity underwriting? And also appreciate there's probably some interconnectivity there as well. |
4,925 | MS | 1 | 2,024 | 2024-04-16 09:30:00 | Morgan Stanley | 472,898 | Sharon Yeshaya: Yes. I would point you to as you said there is interconnectivity. Remember that I think many of the peers have also mentioned there could have been some pull forward that you saw. It's also been a market that's been open over the course of the last 2 years. So I wouldn't draw these same parallel that you might have seen in M&A or in equity where you had a real dearth of activity the last 2 years, but rather that market especially in IG has been relatively open. When you think about high yield and other non-IG kinds of concepts and of course there is the event related transactions, but from an IG market, that market has been well open over the last 2 years.
Operator: We'll move to our next question from Gerard Cassidy with RBC.
Gerard Cassidy: Ted, you had some very encouraging comments on the outlook for the capital markets, which is great. Question for you, you mentioned about the high yield and leveraged loan market. You're starting to see event financing, which is good. How is the competition from the private credit side because they have made inroads obviously in the last couple of years? Are you guys seeing that the traditional investment banks are gaining some of that market share back? |
4,926 | MS | 1 | 2,024 | 2024-04-16 09:30:00 | Morgan Stanley | 472,898 | Ted Pick: The competition is real. And we all need to adapt to stay relevant in the ecosystem. I think there's going to be room for folks in the private space to participate in deals. But I certainly do not believe as some seem to suggest that the global investment banks will not have a large role to play as underwriters of securities and all the benefits that that brings to the issuer versus someone issuing private credit and potentially being the owner over time if things don't go well. So I think we're in a world where the ecosystem will at times have many of the players acting as partners. Sometimes we'll act as counterparties and at times even competitors. But I think the ecosystem has more than enough room on a global basis for both the emerging private credit space, but also the incumbents to continue to be able to do their thing.
Gerard Cassidy: Very good. And just as a quick follow-up to that, once again your outlook is very encouraging. 10 years up again today, there's talk of it moving even higher. You know, the front end of the curve is talking about higher for longer. If we get into a really higher for longer rate environment, does that kind of weigh on some of the optimism of the outlook that you presented today or no, it doesn't really have a material impact on it? |
4,927 | MS | 1 | 2,024 | 2024-04-16 09:30:00 | Morgan Stanley | 472,898 | Ted Pick: Well, it's a great question. It depends on whether rates are higher because they are sustaining continued growth in the U.S. or if they are higher for a period of time and are followed by a tough landing, in which case we're in recession and clearly then things will slow down. I think our view is that the U.S. economy continues to progress quite nicely, that balance sheets amongst our client base are quite strong, both on the institutional side and on the wealth side, and that there is plenty to do and that the higher rates that we see are in part, if not more than in part dictated by a view that we continue to have some inflation and that the economy is in healthy shape and maybe asynchronously relative to other places in the world. But that again speaks to U.S. strength and as you know, first and foremost, we have our activity based in the U.S. But over time, there will be strength in places again like Japan and Europe, and then eventually in the China complex where we will be busy too. So my bullishness is not a mark-to-market on any given week or month. It's a view that corporate boardrooms have been quiet for 3, 4 years and that is not sustainable. They need to move. They're ready to move before the pandemic, then the pandemic came and then there were higher rates. Those higher rates seem to be well absorbed. Yes, now we need to have models that factor in appropriate cost of capital, as we saw in prior regimes where cost of capital matter. And now we're in a period that comes after financial repression, where we'll have some inflation and some real rates and companies and financial sponsors will adapt and the strong companies will prosper. So we are setting up for that and we believe will be a multiyear cycle. And I would say finally that what we're most excited about of course is the model that we are working with both the institutional community, but also our wealth management clients to adapt and to optimize as we move into the next cycle. |
4,928 | MS | 1 | 2,024 | 2024-04-16 09:30:00 | Morgan Stanley | 472,898 | Operator: There are no further questions at this time. Ladies and gentlemen, this concludes today's conference call. Thank you, everyone, for participating. You may now disconnect, and have a great day. |
4,929 | MS | 1 | 2,025 | 2025-04-11 09:30:00 | Morgan Stanley | 472,898 | Operator: Good morning. Welcome to Morgan Stanley's First Quarter 2025 Earnings call. On behalf of Morgan Stanley, I will begin the call with the following information and disclaimers. This call is being recorded. During today's presentation, we will refer to our earnings release and financial supplement, copies of which are available at morganstanley.com. Today's presentation may include forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ materially. Morgan Stanley does not undertake to update the forward-looking statements in this discussion. Please refer to our notices regarding forward-looking statements and non-GAAP measures that appear in the earnings release. This presentation may not be duplicated or reproduced without our consent. I will now turn the call over to Chairman and Chief Executive Officer, Ted Pick. Good morning. Thank you for joining us. |
4,930 | MS | 1 | 2,025 | 2025-04-11 09:30:00 | Morgan Stanley | 472,898 | Ted Pick: The firm delivered a very strong quarter with $7.7 billion in revenue, $2.60 in EPS, and a 23% return on tangible. Wealth added $94 billion of net new assets, bringing the firm total to $7.7 trillion. Equities had a record $4 billion plus quarter which led to strong results across institutional securities. Morgan Stanley delivered returns while supporting clients, buying back stock opportunistically, and building $2 billion of capital. Over the last five quarters, we've grown our equity capital base by about 10%. With a CET1 ratio of 15.3%, our excess capital position and financial strength give us ongoing flexibility and support of clients and shareholders. It is important that we've put up five clean quarters. Our focus on clients combined with discipline around capital, risk, headcount, and investment have generated sequential earnings of $2.21, $1.82, $1.88, $2.22, and now $2.60. This was against a backdrop that was generally favorable but one that hasn't yet seen the tailwind of the long-awaited M&A and IPO capital market cycle. Delivering an average of 20% returns on tangible over the last five quarters is continued affirmation of our financial goals. We've been talking for the last three years about the end of the end of history, which is to say the end of an extended period of political and economic alignment toward globalization. History now resumes. And with that comes an adjustment period where the outlook is necessarily less predictable. The stock, bond, and currency markets are exhibiting the kind of overnight and intraday volatility that reflect rapidly changing probability assessments of different policy outcomes. Economists are telling us the risk of recession has materially increased, but the consensus today is softer, not negative growth. Inflation, meanwhile, continues to swing between declining and sticky. But here too, the forward path of prices along the supply chain to producers and consumers is unclear. The simple truth today is that we do not yet know where trade policy will |
4,931 | MS | 1 | 2,025 | 2025-04-11 09:30:00 | Morgan Stanley | 472,898 | supply chain to producers and consumers is unclear. The simple truth today is that we do not yet know where trade policy will settle. Nor do we know what the actual transmission effects will be on the real economy. As the year progresses, markets will calibrate further clarity on trade policy against the tax and deregulatory pillars of the agenda as the US endeavors to rebalance the fiscal equation and assert the national interest. Given this unpredictability, some clients are deferring strategic activity while others are proceeding. Importantly, core segments of our client universe are continuing to engage. Barring the worst-case risk-off scenario, trade and geopolitical uncertainty will be priced into the markets over time, and the raising, managing, allocating capital—the lifeblood of our business—will continue. As corporates and investors cannot and will not ignore their trade, energy, and technology priorities. In volatile periods, windows to deploy and reallocate capital open and close and open again. It is in such moments that clients most value Morgan Stanley's global reach and depth. Our insights and advice, our capital markets access, and our execution capabilities. The Morgan Stanley of today is in a very good place. It is worth noting that we just delivered a top-line and bottom-line record quarter. While we are rightly focused on near-term uncertainties and disruptions in the markets, our approach is to prudently plan for the longer-term horizon. Our strategy to raise, manage, and allocate capital for clients is crisp, and it is clear. We have an experienced and stable management team. And a deep bench of talent that is focused on that which we can control. We have financial strength, and durability. We have a culture of rigor, humility, and partnership across our integrated firm. With a demonstrated track record of execution, and now five strong quarters in, I am confident that Morgan Stanley will navigate this moment of history's resuming with focus and intensity and that the firm will continue to |
4,932 | MS | 1 | 2,025 | 2025-04-11 09:30:00 | Morgan Stanley | 472,898 | that Morgan Stanley will navigate this moment of history's resuming with focus and intensity and that the firm will continue to scale client wallet and drive long-term operating results. And with that, I'll turn it over to Sharon to discuss the quarter in more detail. |
4,933 | MS | 1 | 2,025 | 2025-04-11 09:30:00 | Morgan Stanley | 472,898 | Sharon Yeshaya: Thank you. Good morning. The firm produced record revenues of $17.7 billion and EPS of $2.60 with a strong ROTCE of 23%. The results demonstrate the power of advice and supporting clients as the intermediary of capital across products and geographies, particularly during periods of uncertainty. With a long-standing global footprint, we are uniquely positioned to serve clients as they navigate global market events and quickly evolving macro dynamics. The first quarter efficiency ratio was 68%. Strong revenues and a continued focus on creating capacity to invest in longer-term initiatives contributed to results. Improved efficiency comes despite $144 million severance charges, which were related to performance management and the alignment of our business needs. Now to the businesses. Institutional securities delivered a record quarter with revenues of $9 billion, up 28% versus the prior year. The breadth of our capabilities and our geographic reach, particularly in our equity franchise and in Asia, drove exceptional performance. Global activity among financial sponsors increased, supporting a steady recovery in investment banking from trough levels. Market catalysts such as shifting dynamics in AI, uncertainty around global monetary policy, and US trade debates created bouts of volatility during the quarter, leading to high levels of client activity and engagement. Against this backdrop, Morgan Stanley advised and supported clients as they rebalanced risk, consistent with our strengths and our business model. Investment banking revenues were $1.6 billion for the quarter. Strength in fixed income underwriting off advisory revenues of $563 million reflected higher completed deals across regions. Activity during this period was supported by a pickup in financial sponsor engagement and growth in midsized deal announcements. Equity underwriting revenues were $319 million. Equity markets were largely open, but activity was muted as issuers and investors evaluated the evolving landscape, particularly in |
4,934 | MS | 1 | 2,025 | 2025-04-11 09:30:00 | Morgan Stanley | 472,898 | markets were largely open, but activity was muted as issuers and investors evaluated the evolving landscape, particularly in the Americas. Fixed income underwriting delivered revenues of $677 million. The result was very strong, with non-investment grade loan issuance driving outperformance. Strong investor demand and tight credit spreads supported active issuance, providing opportunities for our business to capture share during the quarter. With tariff announcements and subsequent market volatility, excuse me, while tariff announcements and subsequent market volatility have disrupted near-term deal activity, our pipelines have not meaningfully changed since the beginning of the year and remain robust. Therefore, while the timing of the deal execution remains sensitive to market conditions, there remains demand for strategic advice and capital raising. Turning to equity. Revenues were robust, increasing 45% from the prior year to a record $4.1 billion. The quarter reflects strength across our client franchise. A broad and deep global footprint, prudent risk management, and returns on our multiyear investments across products contributed to results. Globally, we helped clients remain agile amidst shifting market themes. Prime brokerage continued to report strong results. Clients remain engaged and invested. Our cash benefit business benefited from volumes increasing across regions. Derivative revenues were meaningfully up versus the prior year. The result reflects higher client activity amid a more volatile trading environment. Fixed income revenues were $2.6 billion, improving versus the prior year. An increase in flow trading activity offset fewer opportunities. Macro revenues increased versus the prior year. The business navigated higher market volatility well, particularly in foreign exchange where client activity increased across product relative to last year. Micro revenue declined slightly, as tighter credit spreads limited secondary market opportunities versus the comparative period. This was partially |
4,935 | MS | 1 | 2,025 | 2025-04-11 09:30:00 | Morgan Stanley | 472,898 | slightly, as tighter credit spreads limited secondary market opportunities versus the comparative period. This was partially offset by higher loan balances and an increase in securitization activity. Other revenues increased to $692 million, primarily driven by realized gains on the sale of corporate loans held for sale. Turning to ISG lending and provisions. In the quarter, ISG provisions were $91 million. This reflected portfolio growth alongside a more cautious outlook in response to the volatile macro backdrop in the first quarter. Net charge-offs were approximately $23 million, primarily related to commercial real estate loans in the office sector, which were largely already provisioned for. Turning to wealth. The business delivered very strong results in the quarter across metrics. Revenues of $7.3 billion, reported margin of 27%, $94 billion in net new assets, and consistently strong fee-based flows of $30 billion. Retail clients remain engaged. Strong transactional activity increased unsolicited trading and ongoing migration into fee-based accounts to demonstrate client participation and the demand for advice amid heightened volatility. Client asset levels across the franchise remained strong at $6 trillion of assets. Fee-based assets were largely unchanged compared to the end of the year, at $2.3 trillion, highlighting the diversified nature of the adviser-led fee-based account flows. Pretax profits were $2 billion, and the reported PBT margin was 26.6%. The margin was negatively impacted by 174 basis points related to DCP and severance-related costs. Net new assets for the quarter were strong at $94 billion, representing a 6% annualized growth rate of beginning period assets. The result was supported by broad-based strength across channels, inclusive of elevated flows related to adviser-led clients, stock plan vesting events, positive recruiting trends, and self-directed clients. Asset management revenues were $4.4 billion, up 15% year over year, reflecting higher market levels and the cumulative |
4,936 | MS | 1 | 2,025 | 2025-04-11 09:30:00 | Morgan Stanley | 472,898 | clients. Asset management revenues were $4.4 billion, up 15% year over year, reflecting higher market levels and the cumulative impact of positive fee-based flows. Fee-based flows remained strong at $30 billion. Two dynamics continue to play through our results. First, fee-based flows in the quarter were again supported by assets migrating from adviser-led brokerage accounts to fee-based accounts. Second, assets migrating to the adviser-led channel that originated from the workplace channel. As these relationships grow, with an incremental $20 billion this quarter, adding to the roughly $300 billion accumulated from workplace since we expanded our channel in 2020. Transactional revenues were $873 million, and excluding the impact of DCP, were up 13% versus the prior year. The first quarter's results were supported by higher levels of client activity evidenced by strong daily average trades that have continued to rise despite recent uncertainty. Bank lending balances increased $3 billion quarter over quarter to $163 billion, driven by balanced demand across products. During the quarter, we saw a pickup in securities-based lending balances likely to satisfy upcoming tax obligations. Total deposits of $375 billion were up quarter over quarter as demand for our savings offering was partially offset by the modest decline in sweep balances. Within sweeps, we saw clients consistently deploy cash into markets during each month of the first quarter. Overall deposit movements in the quarter were generally in line with seasonality and our expectations. Net interest income was up modestly quarter over quarter to $1.9 billion. Looking ahead to the second quarter, we expect the seasonal decline in sweeps related to tax payments, which would result in a modest decline in NII. However, over the course of the recent two weeks, we have seen a notable increase in sweep balances, exceeding our internal forecast. While this is likely associated with recent market uncertainty, it could have offsetting impacts to the NII in the second |
4,937 | MS | 1 | 2,025 | 2025-04-11 09:30:00 | Morgan Stanley | 472,898 | While this is likely associated with recent market uncertainty, it could have offsetting impacts to the NII in the second quarter should this continue. For the second quarter, deposit mix will remain the key driver of NII. Our wealth franchise sets the industry standard where both clients and advisors recognize the power of our platform. Clients continue to entrust us with more of their assets, reinforcing the value they placed on advice. Adviser recruitment remains strong, reflecting our reputation as an exceptional place where financial advisors can grow their businesses. Looking towards the year ahead, uncertainty has increased the value of advice and our diversified capabilities. We are confident that our business will deliver durable results throughout various market environments. Moving to investment management, reported revenues were $1.6 billion, increasing 6%. Results reflected higher asset management and related fees, driven by higher average AUM. Total AUM ended at $1.6 trillion. Long-term net inflows were $5.4 billion in the quarter. The inflows were driven primarily by Parametric and fixed income and were supported by our efforts to expand distribution of these products. Within alternatives and solutions, Parametric continues to grow as demand for customized direct indexing and tax advantage solutions remains a key source of retail client engagement. Liquidity and overlay services had outflows of $19 billion. These outflows were consistent with seasonal trends but were more moderate than we had previously expected. Performance-based income and other revenues were $151 million, supported by gains in several infrastructure investments. Turning to the balance sheet. Total spot assets were $1.3 trillion. During the period, we accreted $1.9 billion of common equity Tier 1 capital and continue to deliver out to our commitment to return capital to our shareholders, buying back $1 billion of common stock during the quarter. Standardized RWAs increased quarter over quarter, consistent with seasonal trends |
4,938 | MS | 1 | 2,025 | 2025-04-11 09:30:00 | Morgan Stanley | 472,898 | billion of common stock during the quarter. Standardized RWAs increased quarter over quarter, consistent with seasonal trends and active support of our clients. We ended the quarter with a standardized CET1 ratio of 15.3%, underscoring our strong capital position. Our first quarter tax rate was 21%. The lower rate was supported by share-based award conversions, which largely take place in the first quarter. This quarter's results underscore the strong and consistent performance we strive to deliver in active markets. As a trusted adviser to our broad global client base, we continue to benefit from the strength of our integrated firm. Our client-driven model, combined with strong capital and liquidity, positions us to support clients as they navigate the uncertain landscape. And with that, I will open the line up for questions. |
4,939 | MS | 1 | 2,025 | 2025-04-11 09:30:00 | Morgan Stanley | 472,898 | Operator: We are now ready to take in questions. You're allowed to ask one question and one follow-up and then we'll move to the next person in the queue. Please standby while we compile the Q&A roster. We'll take our first question from Steven Chubak with Wolfe Research. |
4,940 | MS | 1 | 2,025 | 2025-04-11 09:30:00 | Morgan Stanley | 472,898 | Steven Chubak: Hi. Good morning, and thanks for taking my questions. Morning, Steve. Good morning. So, Ted, I wanted to start off with one on the equities trading outlook. Just given your experience overseeing the business, you know, the recent strength has been pretty extraordinary, and the updates from you and peers suggest trading's actually been pretty orderly amid the recent volatility. Something you could just speak to the factors that might support continued durability of the recent strength and some of the variables you're monitoring that could potentially derail some of the recent momentum as well. Steve, love your question. Great quarter. Client activity across the nine boxes. All three products, all three regions, everything clicked. We've made the investments in clients in technology, across Hitech and electronic cash. Across Prime Brokerage and in both the flow and derivative products, and across each major region. Those are the nine boxes. The cash business, as you know, the prime brokerage business, and the derivatives business in each of the three regions, and they all clicked. I feel really good about the business, and it's leadership under Al Thomas in Gokulahari. They've done a hell of a job. It is fundamentally activity-based. The bare case would be weaker economy, weaker sentiment, i.e., the animal spirits going to hibernation, that would be constant with lower prices. Negative manager performance, and that brings lower transaction levels, lower leverage levels, lower new issue activity. But that's not where we are. Markets are off, but clients remain much engaged. High volumes in every region, We have big market share in Asia, as you know. High two-way market views. As we're living through over the last number of days. And new issue market that may pause, but it's still on pipeline. So the upshot is that $4 billion is a very big number, but the run rate has been higher than what we've seen a couple years ago. And it makes sense as we continue to consolidate share, we're clearly continuing |
4,941 | MS | 1 | 2,025 | 2025-04-11 09:30:00 | Morgan Stanley | 472,898 | than what we've seen a couple years ago. And it makes sense as we continue to consolidate share, we're clearly continuing to take share with the right technology, the right mix of client business, the right focus on returns around the world. So it's a winner, and insofar as we don't go risk off, it'll continue to be a winner. And I'm super proud of the team. No. Thanks for that perspective, Ted. And maybe for my follow-up for Sharon, just on the NNA outlook. So the flows were certainly more durable than we and others had anticipated. The market deterioration admittedly was a bit more back-end loaded, and it has accelerated into April. So I was hoping you could speak to the durability of the NNA strength just given some of the negative marks we've seen in both fixed income and equities. And you noted cash has been much more resilient in April. Was hoping you could also speak to what you're seeing across lending and margin, particularly margin, which is more equity or beta sensitive. |
4,942 | MS | 1 | 2,025 | 2025-04-11 09:30:00 | Morgan Stanley | 472,898 | Sharon Yeshaya: Sure. So let me start first by the NNA because I think the story there is actually really encouraging when you look under the hood. As you know, we have three channels. We have workplace, we have self-directed, and we have adviser-led. Last year, if you compare it a year ago, and I know you know, it was a strong first quarter last year, but we talked about individualized flows. In the first quarter of last year. We didn't discuss that here because it was much more broad-based. We had a year-over-year growth in each of those three segments. So stock plan was an increase. On the self-directed side, we have been investing, and you can see it even in our expense numbers, on our marketing and our investment in our self-directed platform. There has been an increase in the assets that we're seeing in that. And on the adviser-led side, it's multiple clients and multiple different sections that you're actually seeing those flows come in. And we're also seeing flows from the recruiting side. So all of that in my mind is quite encouraging that we're seeing the benefits of the. So as it relates specifically to the cash and the stock that you'd mentioned in terms of the SBLs, I was encouraged by the SBL lending lines that we saw and the growth over the course of the first quarter. If you look back over the course of the last two years or so, there's been more muted growth, especially going into tax. Historically, we have seen individuals using their BDP specifically for paying those taxes or money market cash. The fact that we've seen an increase in SBL, which I mentioned in my prepared remarks ahead of tax season, I think is encouraging, that we have reached at least from a transactional lever, what could be an equilibrium. And in periods of, say, a risk-off, etcetera, you might actually begin to see increases in those balances, which I noticed that we had seen higher than expected levels over the course of these last two weeks. |
4,943 | MS | 1 | 2,025 | 2025-04-11 09:30:00 | Morgan Stanley | 472,898 | Operator: We'll move to our next question from Christian Bolu with Autonomous Research. Good morning, Christian. Christian, your line is now open.
Christian Bolu: Oops. Sorry about that. I was on mute. Can you hear me okay now?
Ted Pick: Yep. We got you. We weren't at all offended. We were just wondering how big the question is gonna be, man. Yeah. I was talking to myself for a while there. Sorry. Yeah. I know. I know. I know. I know. I know. I know. I know what that's like. To follow-up on Steven's question around maybe what broadly you're trading, just exceptional results here. Clearly, the market's very volatile. And that volatility has stepped up in April. So maybe talk about how you're managing risk. And then are you taking down exposures, or are you still playing offense? And any sort of color on prime brokerage balances in April, what you're seeing from hedge fund clients. |
4,944 | MS | 1 | 2,025 | 2025-04-11 09:30:00 | Morgan Stanley | 472,898 | Ted Pick: Well, broadly, the first quarter flows into the second quarter. There is a lot of client interaction and the animal spirits are still there insofar as folks are trying to not get caught off-site. So there's natural volatility that we're seeing as I mentioned in the opening remarks. In every space and within equity. So the basic market-making function which is the bread and butter of the cash business both voice and electronic continues to be very strong. You're speaking to the prime brokerage business, there, we continue to be a leader. And sure if clients begin to go negative, or they need to delever, well, by definition, lower balances are the result which results over time in lower P&L. You know, much of the client base, Christian, as you know, most folks are closer to the zero barrier than they are a number that is well off of that. So they have a lot to play for. And given the swings and given intellectual capital, that exists with the asset management community, they're gonna look to continue to engage. There's plenty of stock dispersion, that manifests itself in the derivatives markets as you know. Lots of ways to play across asset macro. That brings together our equities and fixed income folks to put together structured product. So there's lots of reasons to think that the equities business and the markets business generally will continue to be active. The question over time will be, at what point does the uncertainty result in a knockout of the new issue business and volumes will slow on the back of just a continued sense of uncertainty and you see then gap year markets and lower volumes, but we're not seeing that. There is plenty of market-making going on. You know, the first quarter, of course, is typically a seasonal winner. Across the street because clients need to initially allocate. But they continue to allocate. So I'm feeling good about that. Broadly. And I think our own experience has been one where things have been orderly. We've been working with clients nonstop and for all of the |
4,945 | MS | 1 | 2,025 | 2025-04-11 09:30:00 | Morgan Stanley | 472,898 | our own experience has been one where things have been orderly. We've been working with clients nonstop and for all of the concerns about what could come down the road in the real economy. The market-making and the ability to transact to clients as they up and down their leverage levels has been very orderly. So you know, engagement is key here and engagement continues. |
4,946 | MS | 1 | 2,025 | 2025-04-11 09:30:00 | Morgan Stanley | 472,898 | Christian Bolu: Very helpful. Maybe a question on Asia, and kudos to some team for, you know, did a good job on building out strength across regions, particularly in Asia. I'm guessing a lot of that is Japan and the MUFG partnership. But bigger picture, if we are deglobalizing and there is a decoupling of US from Asia broadly, how do you think about the prospects of your international business? |
4,947 | MS | 1 | 2,025 | 2025-04-11 09:30:00 | Morgan Stanley | 472,898 | Ted Pick: Bullish. The power of a global business is to I hate the cliche, sort of an HBR cliche here, but, you know, think global, act local. And I think that has application in our Asia business broadly. Across the investment management wealth high net worth wealth businesses. Which have had a great run here in Hong Kong. But then importantly, the institutional securities business, which is actually about 15% of our firm revenues this past quarter. It was up 35% year over year. So real strength. We have something special, Christian. With our friends and partners in Tokyo. We will have our next board meeting in Tokyo, in fact. A business summit with the leadership in Japan. So we intend on continuing to expand that extraordinary partnership with MUFG. That is a multi-decade play, we hope. Both in the institutional context and in the wealth context. We have a significant business in India. That is a place where we have better part of 12,000 people. We will continue to build our capability both as an infrastructure matter, but also as a securities matter. And then Greater China we have 2,500 people out of Hong Kong out of the 17,500 people we have in Asia. So taking a step back, we have 80,000 people at the firm. 17,500 of them are in Asia. So this is existential to what we do. And 2,500 of those people are in Hong Kong. We're not a big corporate lender onshore. In China, but we interact via Hong Kong actively. And we continue to be a leader both in the investment banking business and in the markets business. In recent quarters, clearly, in equities. Where clients wanna get access to the mainland and to that second-largest economy and stock market and liquidity center in the world. And we continue to be a point of market access and interaction. We pay attention to it, Christian, as you can imagine, actively but day and night, because things are constantly moving around, but we're feeling really good about our continued engagement, with the client base. Locally based, but also on a global basis. And I think you |
4,948 | MS | 1 | 2,025 | 2025-04-11 09:30:00 | Morgan Stanley | 472,898 | really good about our continued engagement, with the client base. Locally based, but also on a global basis. And I think you when we look back, at this period, ten, fifteen years from now, when you and I are having this chat, we will see a Morgan Stanley that indeed has a significant international business that could spend five minutes talking about our business in Europe. I will simply say that we've continued to invest both in the UK and on the continent. We are a determined player to be part of the next global order. Both in the wealth and investment management business, but really in the global institutional securities business. You know, Christian, one of the realities of financial repression was that the cost of running a global investment bank was pretty tough to make the return on capital nut. Very tough. So to have gotten here now with the kind of bankers and markets folks and infrastructure through all of the panoply of regulations throughout Europe and internationally to get to this point now where we can slowly take share to durably take share, you saw that we put into the firm-wide goals to durably increase share across the investment bank. That is not a quarter or even year phenomenon. That is a multiyear phenomenon where we think that there will be of course, national champions, but there will be several global winners that are able to transact in the businesses where we do real well. Which is trusted adviser on M&A trades, on underwritings, and then importantly, market making. And then flow through to net worth where it exists, principally in the US. So I am really quite bullish on our international business, and we will navigate the we'll navigate the next number of months and quarters with care. But the determination is a long-term matter is not only undaunted, but we will push forward. |
4,949 | MS | 1 | 2,025 | 2025-04-11 09:30:00 | Morgan Stanley | 472,898 | Operator: We'll move to our next question from Ebrahim Poonawala with Bank of America.
Ebrahim Poonawala: Hey. Good morning. I guess maybe Ted, so maybe it's just me, but you sound fairly constructive given what we've come through over the last month, your comments on both on the trading side and how clients have behaved and what we've seen in wealth. It doesn't seem to be the case that we've seen a marked deterioration in the last week or the last couple of weeks. Relative to super strength earlier in the quarter. Is that fair assessment? I don't wanna put words in your mouth, but it goes to the fact that if that's the case, the business is a lot more resilient than investors probably give credit for. So just want to make sure we are thinking about in the right way. You mentioned things about, like, if folks going to hibernation, etcetera, I'm surprised that they haven't already. So just wanna make sure so far, given all what we've seen in the market, you've not really felt any negative adverse impacts or trading over on the wealth side? |
4,950 | MS | 1 | 2,025 | 2025-04-11 09:30:00 | Morgan Stanley | 472,898 | Ted Pick: Well, fundamentally, the banking pipeline hasn't changed. Sure. Some clients are naturally going to pause. They've hit the pause button. And others are a go. And there is as you know, you spend time looking at sponsor and corporate activity. There are financial sponsors buying and selling as we speak. Honeywell, Warwick Pincus, you know, buyer. Clear Lake, Dun and Bradstreet. So are sponsors buying and selling assets. So they will continue to play as will corporates it's just going to have to be against the reality of this uncertainty. If the uncertainty can be navigated and priced into the market, there is progress. On these complicated issues. Then folks, I imagine, will respond to that and factor it in as part of their execution risk formula. Now, clearly, if we go risk off, which is to say things really become so unpredictable you don't know where a stock price is going to be within ten or twenty percent, or you don't know where FX cross is gonna be within five or ten percent. And so on with interest rates. Well, I mean, by definition then, activity will stop. Mean, that is just the definition of risk off as you know. But insofar as there is still we are early here. And we're talking about the rearchitecting of industrial policy in the context of America's place in the world, and where it wants to be decades from now. That is weighty stuff but it may well be that that takes some time for some of the bilateral negotiations. But in other contexts, actually, some deals are put on the table. In which case people are going to want to move forward. Because it is our view that the underwriting and M&A pipeline, Streetwide, by the way, not a Morgan Stanley phenomenon. This is the leadership of that product area. Is ready to go. And if windows open, whether those windows are open over a weekend or for a week, or in fact for quarters, or there's a sense that in fact there's relief because we get through this period and we get towards the next two pillars, tax and dreg, I can see clients continuing to move. |
4,951 | MS | 1 | 2,025 | 2025-04-11 09:30:00 | Morgan Stanley | 472,898 | because we get through this period and we get towards the next two pillars, tax and dreg, I can see clients continuing to move. And we will continue to prosecute business. So that's the long answer. The short answer is in the opening of the quarter, we have not seen a slowdown. Is it bumpier for some clients? Of course, it is. And we have to see how they respond to that over the course of the weeks and months to come. But we are still we'll call it, cautiously optimistic. That we won't go into recession. And we will just keep going. |
4,952 | MS | 1 | 2,025 | 2025-04-11 09:30:00 | Morgan Stanley | 472,898 | Ebrahim Poonawala: That's helpful color. Thank you. And maybe, Sharon, for you, there's obviously a lot of discussion around changes to the SLR ratio. Just remind us how impactful could that be for how you manage the balance sheet and just how you manage the business. Is it a needle mover standalone, or how do you think about that? Thank you.
Sharon Yeshaya: Yeah. So I think that it's hard to I wouldn't take SLR only, and I isolation. I will answer your question directly first, but I will give you a little bit of more holistic answer, which is SLR has been, over various quarters, our biasing constraint. And so, certainly, if there's SLR reform, then we will move into a CET1 constrained world, and that provides us with additional opportunities as you think about capital deployment. That being said, it depends on what SLR reform you see. Right? Whether or not it's simply just to allow certain things like treasuries into the denominator, how you think about that, or whether there's a more wholesale understanding that SLR should not be it should certainly be just a backstop and not a binding constraint for an institution. What we feel is probably more important than SLR specifically is just to look at the entire capital regime. So when you think about the interplay between GSIB, between SLR, and between the various CET1 metrics, that is the type of reform one should look at because they actually don't play necessarily that well together. Given that there have been incremental changes simply to one metric versus the other. So from our perspective, one should be looking at everything holistically. But, yes, obviously, we do welcome regulatory reform. And we welcome reform to the SLR ratio. |
4,953 | MS | 1 | 2,025 | 2025-04-11 09:30:00 | Morgan Stanley | 472,898 | Ted Pick: SLR becomes part of the mechanism potentially for some of the relief here. Broadly. It may or may not happen, but to Sharon's point, I think what we are interested in here and as an industry is SLR reform in the context of the panoply of regulation that we have sort of endured whether it's GSIB or CCAR LCR, Basel III, Endgame, the entire panoply of acronyms, the SLR reform might be part of the cocktail in the short term, but really we would look for reform broadly and we're much prepared for that. And, again, Ebrahim, just to sort of put an emphasis on this, we can't make a call on where the markets are gonna be a week from now. I mean, that would be absurd for us to know that. So in a sense, there is increased uncertainty. So any strategic transaction is, by definition, gonna get a harder look. What I'm trying to underscore here though is that largely what we're seeing is some folks still going, but the others pausing. They're not deleting. They're pausing. So, yes, that could result in some of the IPO stack moving out a quarter too. It could be that some M&A activity moves out a stack or two. But this is not a question of people rethinking their priorities around technology, energy, competitive dynamics within their industry. So is why we continue to push forward on this theme that we are going to be in an investment banking cycle. And the fact that the markets business continues to be as active as it is, is a pretty good balance against that within ISG.
Operator: We'll take our next question from Dan Fannon with Jefferies.
Dan Fannon: Good morning, Dan. Good morning. Question on just the adviser business. In the market backdrop like this, with the last few weeks in terms of volatility, what does that mean for recruitment and retention trends? And also, does that change the appetite for fee-based flows as you think about going forward and your goals around increasing that metric? |
4,954 | MS | 1 | 2,025 | 2025-04-11 09:30:00 | Morgan Stanley | 472,898 | Ted Pick: Well, people are coming toward the platform. Jed Fin and Vince Loomia's lights are blinking, as in their phone lights, nonstop. Folks wanna come on to this platform. And that is in part because the funnel works. We're investing in E Trade. The self-directed channel is very busy. Sharon at length, has talked about, as Avaya, workplace product where we add another $20 billion. You see the progress in fee-based flows. But ultimately, when you get to the top of the funnel, it is about the financial adviser. And the financial adviser is seeing the integrated firm for what it is, which we can offer unique access to intellectual capital, world-class technology, compensation that is viewed to be fair and motivating. And the entire thing works. And so what's happening is we are selective about it. But it is fair to say that Jed and Vince are getting a lot of inbound inquiry and we would expect that to continue.
Dan Fannon: Great. And then just as a follow-up, sticking with wealth, you know, the opportunity for alternatives in the wealth channel is clearly a focus for the large alternative managers. Can you talk about your own proprietary alternative products that you might be able to sell within this channel? Or is that something you could think about inorganically wanting to get bigger in terms of your own proprietary products? |
4,955 | MS | 1 | 2,025 | 2025-04-11 09:30:00 | Morgan Stanley | 472,898 | Sharon Yeshaya: Sure. So I'd note for the wealth management platform, we have over $100 billion of private alternatives. It's about if you take that into perspective in terms of what the qualified assets are, we have about 5% of the qualified assets in our system. Are in those private alternatives. Now that compares to your point where our GIC, where our we have, you know, our global investment committee, the recommendation is closer to 15% for those qualified investors. So there certainly is opportunity there. We're working on products from our perspective as well as obviously others are doing it, but we are looking also at places to help fill these gaps and to help you provide a more offering. So it's certainly a focus. It's something that you'll see come through. And we think that there's great opportunity there for us and more broadly just for those alternatives across the platform to go to our retail client base.
Operator: We'll take our next question from Glenn Schorr with Evercore.
Glenn Schorr: Morning, Glenn. Good morning. So we've all applauded all the great trading, which is actually awesome. I'm very curious when you guys are going through the pretty draconian stress tests. The stress test will always spit out pretty bad answers for what any big investment bank does on the trading side. You're doing literally the opposite of that right now. So I'm curious when you look at the composition of those tests, and then you look at the reality of how you perform. And I know it's not, like, every day, and you can't predict the future, but, like, I'm curious on what's different about the setup, how you might suggest tweaking it. Because I know every June when we go through the results, they're way different than reality. |
4,956 | MS | 1 | 2,025 | 2025-04-11 09:30:00 | Morgan Stanley | 472,898 | Sharon Yeshaya: So in terms of the underlying stress test you're obviously going to pick different portions of what that environment would be. What we do versus what the Fed does for our own individual stress test will be different. We will test ourselves on where we think that we would have the most vulnerabilities. I think that the challenges that when you look at the underlying tests is really the uncertainty and the build on build of both previous years, and the fact that you're you if you think about the way and we've said this publicly. If you think about the way that these test results come out, is you're giving something more along the line of in June and you're moving forward to having to execute them in October. There's also very limited amounts where when you think about the test from an industry perspective that looks at each of how the individual companies do. So it's a blanket exam rather than when we look at our own stress test, it's modeled towards our businesses and things that necessarily make sense. For us and what our clients do and what we see. So I think that, the Fed has obviously said that they're interested in providing us with those models. It's challenging for me to say, how would I change their models without seeing their models, but what we I think as an industry we agree on is that the models themselves are done from a very holistic perspective. And something as simple as the way that expenses are allocated. Right? It's not just I wouldn't look at it just from the perspective of, okay, what you're doing differently from a trading perspective, Glenn, but it's really about the architecture of both the sense of what you think of the GMS stress and then how you think of it over nine quarters afterwards. So there's many layers to your question where I think yes, in a period of stress, you can have different environments. But there's a blanket envelope that the Fed is giving us that I think needs to be really looked at more in more detail and more rigor and what's actually done from an |
4,957 | MS | 1 | 2,025 | 2025-04-11 09:30:00 | Morgan Stanley | 472,898 | Fed is giving us that I think needs to be really looked at more in more detail and more rigor and what's actually done from an industry perspective or an underlying company perspective. |
4,958 | MS | 1 | 2,025 | 2025-04-11 09:30:00 | Morgan Stanley | 472,898 | Ted Pick: But you're right, Glenn. We've gained share while still observing everything Sharon just described and buffers on top of that. So it's a lot of work for folks on the ground. Because, of course, part of the Morgan Stanley durability story is one where we have excess capital, financial strength, and liquidity. So that has been the headline in both face letters. And folks in every business are well aware of that. And the risk-adjusted capital that needs to be applied across businesses and across clients. And, nonetheless, folks have gained share. So for me, and for Sharon, for the team, is important here is this idea of durably gaining shares given the high cost of running these businesses. You should be able to achieve operating leverage when the environments are strong. And when the environments are choppier that you at least can make your cost of capital. That should be the bid ask. And that is the way we're continuing to think about the markets business and now doing so with excess capital you know, by any measure.
Glenn Schorr: Thank you for all that. I have a much more answerable question for a follow-up. And it relates to just being in general, like, what did you take the reserve on? I know it's small. Is that as of three thirty-one is that as of kinda now? And then what did you sell for the besides gain in other revenue? Just curious on those moving parts. |
4,959 | MS | 1 | 2,025 | 2025-04-11 09:30:00 | Morgan Stanley | 472,898 | Sharon Yeshaya: Sure. Just from a from the provisions perspective, it's as of three thirty-one where, basically, for us, when you're looking at the metric the quantitative metric, most important from us from a CECL perspective is GDP. We do disclose that. At the end of the fourth quarter, we had GDP of 1.9, was the expectation for the end of 2025, and that moved down to 1.5. So that's included in terms of what we've taken. Obviously, should there be changes, there will be changes as you move forward from a provisions perspective in the second quarter. You then asked about other and how you think about the movement in those health for sale names. Obviously, we do have a number of names. We run a portfolio business. And we were focused very much on velocity. We've talked a lot about window-driven environments. We had a window-driven environment in periods of the first quarter. We were able to move and take advantage of things for syndication. And what we did is we basically cleared a lot of our chunkier positions, and you'll see that flow through that other line. And what that means, of course, is that we all things be equal, we have now capacity in the event book.
Operator: We'll move to our next question from Gerard Cassidy with RBC.
Gerard Cassidy: Good morning, Gerard. Hi, Ken. Quick question. You guys obviously have your fingers on the pulse of the market very well, and there's been some discussions around in the fixed income trading area with treasuries, the so-called bias trade. There's some stresses out there. Are you guys have any sense of where the are there any stresses going on in the market today? And where are you keeping extra attention in case the stresses do pop up? |
4,960 | MS | 1 | 2,025 | 2025-04-11 09:30:00 | Morgan Stanley | 472,898 | Ted Pick: Well, there were higher volumes earlier in the week and then and we saw some derisking. That was followed by some strong auctions. You know, as of this morning anyway when we were getting on this call. Markets continue to function and like all markets, we're engaged with clients. But clearly, we're moving from one instrument to another. And we're gonna be keeping an eye on that. But for our own part, respect to engagement with clients, it's been orderly. And, again, the strong auction speaks to that. And, we're gonna keep a close eye out. But for us, it's been orderly and clients have engaged in a way that is not created any sense of something broader, but that will continue to play out. But for us, it's been regular way some derisking, higher volumes, but all things vehicle functioning markets.
Gerard Cassidy: Very good. And, Sharon, when you obviously talked about the wealth management business in your prepared remarks, and you've got the workplace channel as well as the self-directed and the traditional Morgan Stanley full-service channel. In these markets, that we're in where they're very volatile and choppy, are those three channels, which is the one that you think will do best and which is the one that might slow down in activity? |
4,961 | MS | 1 | 2,025 | 2025-04-11 09:30:00 | Morgan Stanley | 472,898 | Sharon Yeshaya: It's a it is a that's a great question. What I can say so far is that based on what we've seen over the course of the last five years, right, it depends on the environment and what you're actually going through. We've seen you know, clearly COVID was different when you think about self-directed. The workplace channel is one where one could say you might see some of a decrease necessarily in granting of stocks. That is what could happen. So if you wanna take kind of that approach of where is the vulnerability, maybe that is one where the actual vesting or the grants of the various stocks might be there. You might not have IPO event. However, on the other side of that, self-directed is one where we see record levels of activities in various days. We've seen increased client engagement in self-directed, and we've also really seen an increase client engagement on the adviser-led side. I highlighted what's known as unsolicited trades. So rather than an adviser necessarily calling an individual, we've seen that those numbers really rise over the course of the first quarter. So that just shows you that there's a lot of engagement on both sides. The volumes from that adviser side over the last two weeks have been up fifty to one hundred percent larger than over the volumes for the last thirty trading days. Remember all the stuff we used to talk about with next best action, etcetera? Where advisers were sending next best actions to their individual retail clients. We've seen many more responses to that than we have historically. Over the course of these last two weeks. What to me that highlights is really the value of the advice and the questions. And then from a self-directed side, the fact that our technology has been able to handle this level of volume without interruption allows a client who is self-directed to come back continue to come back to the platform itself. So that's why I highlight those two channels. Workplace a little bit less in control, so I cannot exactly tell you what a workplace |
4,962 | MS | 1 | 2,025 | 2025-04-11 09:30:00 | Morgan Stanley | 472,898 | why I highlight those two channels. Workplace a little bit less in control, so I cannot exactly tell you what a workplace channel would do in terms of granting new stock, etcetera. |
4,963 | MS | 1 | 2,025 | 2025-04-11 09:30:00 | Morgan Stanley | 472,898 | Operator: We'll move to our next question from Devin Ryan with Citizens JMP.
Devin Ryan: Morning, Devin. Hey. Good morning, Ted. Good morning, Sharon. A question on expenses. It'd be great to just get a bit of background on the recent initiative that drove some of the severance in the quarter. I know not a huge number, but just, you know, what you accomplished there? And then just more broadly thought on opportunities to drive more, you know, efficiency at the firm and different revenue environments and just whether, you know, this current uncertainty will slow any investments or drive any change in kind of the expense growth plans overall?
Ted Pick: We had a reduction of 3% of our headcount XFA's in the first quarter. As you know. That was coming out of a rigorous year-end performance review assessment and process. We have ongoing investments in automation AI, and assessing where we want our people for the next five, ten years. But, clearly, the environment is such that we'll be reviewing the overall workforce regularly as we always do. And when there's some uncertainty, you have to be doing that. But to be clear, we like where we are right now and where talent can fit into the firm. We continue to bring people on board in the places where we intend on growing. So the expense mentality is around rigor and discipline. It is not necessarily about less. It's about the right allocation of human capital in the context of where the world is going. |
4,964 | MS | 1 | 2,025 | 2025-04-11 09:30:00 | Morgan Stanley | 472,898 | Devin Ryan: Got it. Thanks, Ted. And then just on the investment banking conversation, you know, great to hear about the pipelines. You know, uncertainty has been a challenge. The other thing, though, the valuations are down a lot. Right? The S&P is down to teens. A lot of these growth stocks are down thirty, forty percent. So I'm just curious for the new issue market or the M&A market to really turn back on, do you think we need to see kind of a V recovery in asset prices because that's where people's expectations are anchored? Or do you think this is just much more about just some stability and people are gonna try to execute on things once we get that? Like, it's not just about valuations bouncing back to where we came from.
Ted Pick: Stability will be more important than valuation. Most of these transactions are of comparative value. And so waiting for stocks to hit all-time highs again, that probably is not the right strategy. It's a question of what your longer-term priorities are with respect to things that matter to you in the C-suite around supply chain, energy, technology, and sizing against the sector. So too with the IPO calendar, there were folks that came right as that window briefly shut. The brief the window ought to reopen. And potentially reopen for periods of time that will allow for a lot of the new parade of companies to come through. So I think it's more a sense of the uncertainty getting sort of getting a barrier and having a sense that it's not totally risk-off versus pure valuation. Which is why I'm saying pause versus delete.
Operator: Our next question comes from Mike Mayo with Wells Fargo Securities. |
4,965 | MS | 1 | 2,025 | 2025-04-11 09:30:00 | Morgan Stanley | 472,898 | Operator: Our next question comes from Mike Mayo with Wells Fargo Securities.
Mike Mayo: Good morning, Mike. Hey, Ted. Pause not delete. That's my key question. You know, you sound more upbeat than, I'd say, the average manager. And I'm just trying to what maybe what you're seeing or what you've seen historically or what gives you a little bit more optimism than some others and on the fourth quarter call, meaning, you said mergers, backlog, the best in seven years, you said the DCM is kind of a domino effect at activity in the CFO level. And sponsors are going to harvest. And the pipelines are still the same you said today. So I guess you could still pay a positive story. Pause not delete. But I think the real question is first of all, if that's accurate, I'm still reflecting your views. But at some point, it's delete. Not pause. And the question is, is that one month two months? If we're if it were the next earnings call, we're still discussing what's gonna happen with tariffs, is it kinda you know, do you have to think about rightsizing? And do we think about maybe this capital markets recovery, especially merger recovery, maybe not happening? At what point does the uncertainty go on for so long as to kill off the recovery? |
4,966 | MS | 1 | 2,025 | 2025-04-11 09:30:00 | Morgan Stanley | 472,898 | Ted Pick: That's that is the question. That is the question. The Resin Denture of the deals that are in the pipeline is a strong one. Because folks were interrupted obviously by the years of the pandemic. And the uncertainty around interest rates. And now, of course, there is this, and the question Mike, is you know, what are we talking about with respect to the macro environment? Are we talking about the rearchitecting of industrial policy in the context of America's place today. And where it wants to be decades from now. Is it about getting our fiscal house in order and how that interplays with tax and deregulation to come? So broader context, we're talking about writing our own imbalances, and then redefining what's in America's long-term national interest. Those are weighty issues. Complex I. E. Intricate, complicated, I. E. Unclear, so to your point, it could be that when one thinks about how big that adjustment is, that it will require enough time that the pause effectively becomes a relook and the books get put away. But I think it's still relatively early in how this new framework has been formulated. We are finding, Mike, that we are still very much engaged with clients. Yes. We're asking more questions as they are. We're listening to a wider spectrum of possibilities. And, yes, it's fair to say we're gonna have higher structural volatility for a while. So what is the client strategy? What are the risks and what are their alternatives? What are the tactical options? And when you think about what we deliver, which is trusted advice, access to markets, a global perspective, it is the case that markets can be accessed over weekends, overnight, can be done through semi-public, semi-private markets. There is an entire democratization or financialization of investors, buyers, and sellers that allow for deals to happen in all but markets that have been shut down. So it is the case truly that three, four months from now, if the markets have gotten even more complicated, around these weighty issues that the |
4,967 | MS | 1 | 2,025 | 2025-04-11 09:30:00 | Morgan Stanley | 472,898 | truly that three, four months from now, if the markets have gotten even more complicated, around these weighty issues that the adjustment period looks like it will be a longer one. That it's more of a delete. Someday kind of thing. But I am of the view that we are still on pause. We don't know whether the economy is going to contract. We don't know what the rate of inflation will be when the transmission effects come through. You saw that today's PPI was in fact a miss on the negative side. So we are staying super close to clients. Corporate, and financial sponsor. And in our markets business and then in our wealth business high levels of interaction activity such that we believe that the pause will be frustrating at times. As it is for all of us, Mike. That deals take longer to print. But in the context of clarity around the other two pillars too, tax and Dreg, it may be that that is enough for our client base especially at the top of the advice pyramid, to say, you know what? I can actually quantify what that higher structural volatility is about whether it's in equity prices or in foreign exchange or in interest rates, and indeed, we will go forward. And the answer to your question and it is an important one for a firm like this, is one that will be will be one that I think we'll have more clarity on midyear. When we see how the economy is reacting to, all of the discussions and issues on the table that I've described. |
4,968 | MS | 1 | 2,025 | 2025-04-11 09:30:00 | Morgan Stanley | 472,898 | Mike Mayo: Alright. Thank you for that answer. Thanks, Mike.
Operator: There are no further questions at this time. Ladies and gentlemen, this concludes today's conference call. Thank you everyone for participating. You may now disconnect and have a great day. |
4,969 | MSFT | 4 | 2,024 | 2024-07-30 17:30:00 | Microsoft Corporation | 21,835 | Operator: Greetings and welcome to the Microsoft Fiscal Year 2024 Fourth Quarter Earnings Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Brett Iversen, Vice President of Investor Relations. |
4,970 | MSFT | 4 | 2,024 | 2024-07-30 17:30:00 | Microsoft Corporation | 21,835 | Brett Iversen: Good afternoon and thank you for joining us today. On the call with me are Satya Nadella, Chairman and Chief Executive Officer; Amy Hood, Chief Financial Officer, Alice Jolla, Chief Accounting Officer, and Keith Dolliver, Corporate Secretary and Deputy General Counsel. On the Microsoft Investor Relations website, you can find our earnings press release and financial summary slide deck, which is intended to supplement our prepared remarks during today’s call and provides the reconciliation of differences between GAAP and non-GAAP financial measures. More detailed outlook slides will be available on the Microsoft Investor Relations website when we provide outlook commentary on today’s call. On this call we will discuss certain non-GAAP items. The non-GAAP financial measures provided should not be considered as a substitute for or superior to the measures of financial performance prepared in accordance with GAAP. They are included as additional clarifying items to aid investors in further understanding the company's fourth quarter performance in addition to the impact these items and events have on the financial results. All growth comparisons we make on the call today relate to the corresponding period of last year unless otherwise noted. We will also provide growth rates in constant currency, when available, as a framework for assessing how our underlying businesses performed, excluding the effect of foreign currency rate fluctuations. Where growth rates are the same in constant currency, we will refer to the growth rate only. We will post our prepared remarks to our website immediately following the call until the complete transcript is available. Today's call is being webcast live and recorded. If you ask a question, it will be included in our live transmission, in the transcript, and in any future use of the recording. You can replay the call and view the transcript on the Microsoft Investor Relations website. During this call, we will be making forward-looking statements which are predictions, |
4,971 | MSFT | 4 | 2,024 | 2024-07-30 17:30:00 | Microsoft Corporation | 21,835 | the Microsoft Investor Relations website. During this call, we will be making forward-looking statements which are predictions, projections, or other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could materially differ because of factors discussed in today's earnings press release, in the comments made during this conference call, and in the risk factor section of our Form 10-K, Forms 10-Q, and other reports and filings with the Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statement. And with that, I’ll turn the call over to Satya. |
4,972 | MSFT | 4 | 2,024 | 2024-07-30 17:30:00 | Microsoft Corporation | 21,835 | Satya Nadella: Thank you, Brett. We had a solid close to our fiscal year. All-up, annual revenue was more than $245 billion, up 15% year-over-year. And Microsoft Cloud revenue surpassed $135 billion, up 23%. Before I dive in, I want to offer some broader perspective on the AI platform shift. Similar to the cloud, this transition involves both knowledge and capital intensive investments. And as we go through this shift, we are focused on two fundamental things: First, driving innovation across a product portfolio that spans infrastructure and applications so as to ensure that we are maximizing our opportunity, while in parallel continuing to scale our cloud business and prioritizing fundamentals, starting with security. Second, using customer demand signal and time to value to manage our cost structure dynamically and generate durable, long-term operating leverage. With that, let me highlight examples, starting with Azure. Our share gains accelerated this year, driven by AI. We expanded our datacenter footprint, announcing investments across four continents. These are long-term assets around the world to drive growth for the next decade and beyond. We added new AI accelerators from AMD and NVIDIA, as well as our own first party silicon Azure Maia. And we introduced new Cobalt 100, which provides best-in-class performance for customers like Elastic, MongoDB, Siemens, Snowflake, and Teradata. We continued to see sustained revenue growth from migrations. Azure Arc is helping customers in every industry, from ABB and Cathay Pacific, to LaLiga, to streamline their cloud migrations. We now have 36,000 Arc customers, up 90% year-over-year. We remain the hyperscale cloud of choice for SAP and Oracle workloads. Atos, Coles, Daimler Truck AG, Domino’s, Haleon, for example, all migrated their mission-critical SAP workloads to our cloud. And with our Azure VMware Solution, we offer the fastest and most cost-effective way for customers to migrate their VMware workloads too. With Azure AI, we are building out the app server |
4,973 | MSFT | 4 | 2,024 | 2024-07-30 17:30:00 | Microsoft Corporation | 21,835 | most cost-effective way for customers to migrate their VMware workloads too. With Azure AI, we are building out the app server for the AI wave, providing access to the most diverse selection of models to meet customers’ unique cost, latency, and design considerations. All-up, we now have over 60,000 Azure AI customers, up nearly 60% year-over-year, and average spend per customer continues to grow. Azure OpenAI Service provides access to best-in-class frontier models, including as of this quarter GPT-4o and GPT-4o mini. It is being used by leading companies in every industry, including H&R Block, Suzuki, Swiss Re, Telstra as well as digital natives like Freshworks, Meesho, and Zomato. With Phi-3, we offer a family of powerful, small language models, which are being used by companies like BlackRock, Emirates, Epic, ITC, Navy Federal Credit Union, and others. And with Models as a Service, we provide API access to third-party models, including as of last week the latest from Cohere, Meta, and Mistral. The number of paid Models as a Service customers more than doubled quarter-over-quarter, and we are seeing increased usage by leaders in every industry, from Adobe and Bridgestone, to Novo Nordisk and Palantir. Now, on to data. Our Microsoft Intelligent Data Platform provides customers with the broadest capabilities spanning databases, analytics, business intelligence, and governance along with seamless integration with all of our AI services. The number of Azure AI customers also using our data and analytics tools grew nearly 50% year-over-year. Microsoft Fabric, our AI-powered next generation data platform – now has over 14,000 paid customers, including leaders in every industry, from Accenture and Kroger, to Rockwell Automation and Zeiss up 20% quarter-over-quarter. And, this quarter, we introduced new first-of-their-kind real-time intelligence capabilities in Fabric so customers can unlock insights on high-volume, time sensitive data. Now, on to developer tools. GitHub Copilot is by far the most widely adopted |
4,974 | MSFT | 4 | 2,024 | 2024-07-30 17:30:00 | Microsoft Corporation | 21,835 | insights on high-volume, time sensitive data. Now, on to developer tools. GitHub Copilot is by far the most widely adopted AI-powered developer tool. Just over two years since its general availability, more than 77,000 organizations from BBVA, FedEx, and H&M, to Infosys and Paytm have adopted Copilot, up 180% year-over-year. And we are going further. With Copilot Workspace, we offer Copilot-native end-to-end developer productivity across plan, build, test, debug, and deploy cycle. Copilot is driving GitHub growth, all up, GitHub’s annual revenue run rate is now $2 billion. Copilot accounted for over 40% of GitHub revenue growth this year, and is already a larger business than all of GitHub was when we acquired it. We are also integrating generative AI across Power Platform, enabling anyone to use natural language to create apps, automate workflows, or build a website. To date, over 480,000 organizations have used AI-powered capabilities in Power Platform, up 45% quarter-over-quarter. In total, we now have 48 million monthly active users of Power Platform, up 40% year-over-year. Now, on to future of work. Copilot for Microsoft 365 is becoming a daily habit for knowledge workers, as it transforms work, workflow, and work artifacts. The number of people who use Copilot daily at work nearly doubled quarter-over-quarter, as they use it to complete tasks faster, hold more effective meetings, and automate business workflows and processes. Copilot customers increased more than 60% quarter-over-quarter. Feedback has been positive, with majority of enterprise customers coming back to purchase more seats. All-up, the number of customers with more than 10,000 seats more than doubled quarter-over-quarter, including Capital Group, Disney, Dow, Kyndryl, Novartis. And EY alone will deploy Copilot to 150,000 of its employees. And we are going further, adding agent capabilities to Copilot. New Team Copilot can facilitate meetings, and create and assign tasks. And, with Copilot Studio, customers can extend Copilot for Microsoft |
4,975 | MSFT | 4 | 2,024 | 2024-07-30 17:30:00 | Microsoft Corporation | 21,835 | can facilitate meetings, and create and assign tasks. And, with Copilot Studio, customers can extend Copilot for Microsoft 365 and build custom copilots that proactively respond to data and events using their own first and third-party business data. To date, 50,000 organizations from Carnival Corporation, Cognizant, and Eaton, to KPMG, Majesco, and McKinsey have used Copilot Studio, up over 70% quarter-over-quarter. We are also extending Copilot to specific industries, including healthcare, with DAX Copilot. More than 400 healthcare organizations including Community Health Network, Intermountain, Northwestern Memorial Healthcare, and Ohio State University Wexner Medical Center have purchased DAX Copilot to date, up 40% quarter-over-quarter, and the number of AI-generated clinical reports more than tripled. Copilot is also transforming ERP and CRM business applications. We again took share this quarter, as customers like ThermoFisher Scientific switched to Dynamics. Our new Dynamics 365 Contact Center is a Copilot-first solution that infuses generative AI throughout the contact center workflow. Companies like 1-800 Flowers, Mediterranean Shipping, Synoptek will rely on it to deliver better customer support. And Dynamics 365 Business Central is now trusted by over 40,000 organizations for core ERP. Microsoft Teams has become essential to how hundreds of millions of people meet, call, chat, collaborate, and do business. We once again saw year-over-year usage growth. Teams Premium has surpassed 3 million seats, up nearly 400% year-over-year, as organizations like dentsu, Eli Lilly, and Ford chose it for advanced features like end-to-end encryption and real-time translation. When it comes to devices, we introduced our new category of Copilot+ PCs this quarter. They are the fastest, most intelligent Windows PCs ever, and they include a new system architecture designed to deliver best-in-class performance and breakthrough AI experiences. We are delighted by early reviews. And we are looking forward to the introduction |
4,976 | MSFT | 4 | 2,024 | 2024-07-30 17:30:00 | Microsoft Corporation | 21,835 | performance and breakthrough AI experiences. We are delighted by early reviews. And we are looking forward to the introduction of more Copilot+ PCs powered by all of our silicon and OEM partners in the coming months. More broadly, Windows 11 active devices increased 50% year-over-year. And we are seeing accelerated adoption of Windows 11 by companies like Carlsberg, E.ON, National Australia Bank. Now, on to security. We continue to prioritize security above all else. We are doubling down on our Secure Future Initiative, as we implement our principles of secure by design, secure by default, and secure operations. Through this initiative, we are also continually applying what we are learning, and translating it into innovation for our customers, including how we approach AI. Over 1,000 paid customers used Copilot for Security, including Alaska Airlines, Oregon State University, Petrofac, Wipro, WTW. And we are also securing customers’ AI deployments, with updates to Defender and Purview. All-up, we now have over 1.2 million security customers. Over 800,000 including Dell Technologies, Deutsche Telekom, TomTom use four or more workloads, up 25% year-over-year. And Defender for Cloud, our cloud security solution, surpassed $1 billion in revenue over the past 12 months as we protect customer workloads across multi-cloud and hybrid environments. Now, let me turn to our consumer businesses, starting with LinkedIn. LinkedIn continues to see accelerated member growth and record engagement. 1.5 million pieces of content are shared every minute on the platform. And video is now the fastest growing format on LinkedIn, with uploads up 34% year-over-year. LinkedIn Marketing Solutions continues to be a leader in B2B digital advertising, helping companies deliver the right message, to the right audience, on a safe, trusted platform. And when it comes to our subscription businesses, Premium sign ups increased 51% this fiscal year, and we are adding even more value to our members and customers with new AI tools. Our reimagined |
4,977 | MSFT | 4 | 2,024 | 2024-07-30 17:30:00 | Microsoft Corporation | 21,835 | 51% this fiscal year, and we are adding even more value to our members and customers with new AI tools. Our reimagined AI-powered LinkedIn Premium experience is now available for every Premium subscriber worldwide, helping them more easily and intuitively connect to opportunity, learn, and get career coaching. Finally, hiring took share for the second consecutive year. And, now, on to Search, Advertising and News. We are ensuring that Bing, Edge, and Copilot collectively are driving more engagement and value to end-users, publishers, and advertisers. Our overall revenue ex-TAC increased 19% year-over-year, and we again took share across Bing and Edge. We continue to apply generative AI to pioneer new approaches to how people search and browse. Just last week, we announced we are testing a new generative search experience, which creates a dynamic response to a user’s query, while maintaining click share to publishers. And we continue to drive record engagement with Copilot for the web. Consumers have used Copilot to create over 12 billion images and conduct 13 billion chats to date, up 150% since the start of the calendar year. Thousands of news and entertainment publishers trust us to reach new audiences with Microsoft Start. And, in fact, we have paid them $1 billion over the last five years. We are helping advertisers increase their ROI too. We have seen positive response to Performance Max, which uses AI to dynamically create and optimize ads. And Copilot in Microsoft Ad Platform helps marketers create campaigns and troubleshoot using natural language. Now, on to gaming. We now have over 500 million monthly active users across platforms and devices. And our content pipeline has never been stronger. We previewed a record 30 new titles at our showcase this quarter. 18 of them such as Call of Duty: Black Ops 6 will be available on Game Pass. Game Pass Ultimate subscribers can now stream games directly on the devices they already have, including as of last month, Amazon Fire TVs. Finally, we are bringing our IP |
4,978 | MSFT | 4 | 2,024 | 2024-07-30 17:30:00 | Microsoft Corporation | 21,835 | games directly on the devices they already have, including as of last month, Amazon Fire TVs. Finally, we are bringing our IP to new audiences. Fallout, for example, made its debut as a TV show on Amazon Prime this quarter. It was the second most watched title on the platform ever, and hours played on Game Pass for Fallout franchise increased nearly 5x quarter-over-quarter. In closing, I am energized about the opportunities ahead. We are investing for the long-term in our fundamentals, in our innovation, and in our people. With that, let me turn it over to Amy. |
4,979 | MSFT | 4 | 2,024 | 2024-07-30 17:30:00 | Microsoft Corporation | 21,835 | Amy Hood: Thank you, Satya, and good afternoon everyone. This quarter, revenue was $64.7 billion, up 15% and 16% in constant currency. Earnings per share was $2.95 and increased 10% and 11% in constant currency. In our largest quarter of the year, we again delivered double-digit top and bottom line growth with continued share gains across many of our businesses and record commitments to our Microsoft Cloud platform. Commercial bookings were significantly ahead of expectations and increased 17% and 19% in constant currency. This record commitment quarter was driven by growth in the number of 10-million-dollar-plus and 100-million-dollar-plus contracts for both Azure and Microsoft 365 and consistent execution across our core annuity sales motions. Commercial remaining performance obligation increased 20% and 21% in constant currency to $269 billion. Roughly 40% will be recognized in revenue in the next 12 months, up 18% year-over-year. The remaining portion, recognized beyond the next 12 months, increased 21%. And this quarter, our annuity mix was 97%. At a company level, Activision contributed a net impact of approximately 3 points to revenue growth, was a 2 point drag on operating income growth, and had a negative $0.06 impact to earnings per share. A reminder that this net impact includes adjusting for the movement of Activision content from our prior relationship as a third-party partner to first-party, and includes $938 million from purchase accounting adjustments, integration, and transaction-related costs. FX did not have a significant impact on our results and was roughly in line with our expectations on total company revenue, segment level revenue, COGS, and operating expense growth. Microsoft Cloud revenue was $36.8 billion and grew 21% and 22% in constant currency, roughly in line with expectations. Microsoft Cloud gross margin percentage decreased roughly 2 points year-over-year to 69% in line with expectations. Excluding the impact of the change in accounting estimate for useful lives, gross margin |
4,980 | MSFT | 4 | 2,024 | 2024-07-30 17:30:00 | Microsoft Corporation | 21,835 | to 69% in line with expectations. Excluding the impact of the change in accounting estimate for useful lives, gross margin percentage decreased slightly driven by sales mix shift to Azure, partially offset by improvement in Azure even with the impact of scaling our AI infrastructure. Company gross margin dollars increased 14% and 15% in constant currency and gross margin percentage decreased slightly year-over-year to 70%. Excluding the impact of the change in accounting estimate, gross margin percentage increased slightly, even with the impact from purchase accounting adjustments, integration, and transaction-related costs from the Activision acquisition. Operating expenses increased 13% with 9 points from the Activision acquisition. At a total company level, headcount at the end of June was 3% higher than a year ago. Operating income increased 15% and 16% in constant currency and operating margins were 43%, relatively unchanged year-over-year. Excluding the impact of the change in accounting estimate, operating margins increased slightly driven by the higher gross margin noted earlier and improved operating leverage through continued cost discipline. Now to our segment results. Revenue from Productivity and Business Processes was $20.3 billion and grew 11% and 12% in constant currency, slightly ahead of expectations driven by better-than-expected results across all business units. Office commercial revenue grew 12% and 13% in constant currency. Office 365 commercial revenue increased 13% and 14% in constant currency with ARPU growth primarily from E5 momentum as well as Copilot for Microsoft 365. Paid Office 365 commercial seats grew 7% year-over-year with installed base expansion across all customer segments. Seat growth was again driven by our small and medium business and frontline worker offerings, although both segments continued to moderate. Office commercial licensing declined 9% and 7% in constant currency, with continued customer shift to cloud offerings. Office consumer revenue increased 3% and 4% in |
4,981 | MSFT | 4 | 2,024 | 2024-07-30 17:30:00 | Microsoft Corporation | 21,835 | and 7% in constant currency, with continued customer shift to cloud offerings. Office consumer revenue increased 3% and 4% in constant currency with continued momentum in Microsoft 365 subscriptions, which grew 10% to 82.5 million. LinkedIn revenue increased 10% and 9% in constant currency driven by better-than-expected performance across all businesses. Dynamics revenue grew 16% driven by Dynamics 365 which grew 19% and 20% in constant currency. We saw continued growth across all workloads and better-than-expected new business. Dynamics 365 now represents roughly 90% of total Dynamics revenue. Segment gross margin dollars increased 9% and 10% in constant currency and gross margin percentage decreased roughly 1 point year-over-year. Excluding the impact of the change in accounting estimate, gross margin percentage decreased slightly driven by Office 365 as we scale our AI infrastructure. Operating expenses increased 5%, and operating income increased 12% and 13% in constant currency. Next, the Intelligent Cloud segment. Revenue was $28.5 billion, increasing 19% and 20% in constant currency, in line with expectations. Overall, server products and cloud services revenue grew 21% and 22% in constant currency. Azure and other cloud services revenue grew 29% and 30% in constant currency, in line with expectations and consistent with Q3 when adjusting for leap year. Azure growth included 8 points from AI services where demand remained higher than our available capacity. In June, we saw slightly lower-than-expected growth in a few European geos. In our per-user business, the enterprise mobility and security installed base grew 10% to over 281 million seats with continued impact from moderated growth in seats sold outside the Microsoft 365 suite. Therefore, our Azure consumption business continues to grow faster than total Azure. In our on-premises server business, revenue increased 2% and 3% in constant currency. Growth was driven by demand for our hybrid solutions although with slightly lower-than-expected |
4,982 | MSFT | 4 | 2,024 | 2024-07-30 17:30:00 | Microsoft Corporation | 21,835 | 2% and 3% in constant currency. Growth was driven by demand for our hybrid solutions although with slightly lower-than-expected transactional purchasing. Enterprise and partner services revenue decreased 7% on a strong prior year comparable for Enterprise Support Services. Segment gross margin dollars increased 16% and gross margin percentage decreased roughly 2 points year-over-year. Excluding the impact of the change in accounting estimate, gross margin percentage decreased slightly driven by sales mix shift to Azure, partially offset by the improvement in Azure noted earlier, even with the impact of scaling our AI infrastructure. Operating expenses increased 5% and operating income grew 22% and 23% in constant currency. Now to More Personal Computing. Revenue was $15.9 billion, increasing 14% and 15% in constant currency, with 12 points of net impact from the Activision acquisition. Results were above expectations driven by Windows commercial and Search. The PC market was as expected and Windows OEM revenue increased 4% year-over-year. Windows commercial products and cloud services revenue increased 11% and 12% in constant currency, ahead of expectations due to higher in-period revenue recognition from the mix of contracts. Devices revenue decreased 11% and 9% in constant currency, roughly in line with expectations, as we remain focused on our higher margin premium products. While early days, we’re excited about the recent launch of our Copilot+ PCs. Search and news advertising revenue ex-TAC increased 19%, ahead of expectations, primarily due to improved execution. Healthy volume growth was driven by Bing and Edge. And in Gaming, revenue increased 44% with 48 points of net impact from the Activision acquisition. Xbox content and services revenue increased 61%, slightly ahead of expectations, with 58 points of net impact from the Activision acquisition. Stronger-than-expected performance in first-party content was partially offset by third-party content performance. Xbox hardware revenue decreased 42% and 41% |
4,983 | MSFT | 4 | 2,024 | 2024-07-30 17:30:00 | Microsoft Corporation | 21,835 | in first-party content was partially offset by third-party content performance. Xbox hardware revenue decreased 42% and 41% in constant currency. Segment gross margin dollars increased 21%, with 10 points of net impact from the Activision acquisition. Gross margin percentage increased roughly 3 points year-over-year primarily driven by sales mix shift to higher margin businesses. Operating expenses increased 43% with 41 points from the Activision acquisition. Operating income increased 5% and 6% in constant currency. Now back to total company results. Capital expenditures including finance leases were $19 billion, in line with expectations, and cash paid for PP&E was $13.9 billion. Cloud and AI related spend represents nearly all of total capital expenditures. Within that, roughly half is for infrastructure needs where we continue to build and lease datacenters that will support monetization over the next 15 years and beyond. The remaining cloud and AI related spend is primarily for servers, both CPUs and GPUs, to serve customers based on demand signals. For the full fiscal year, the mix of our cloud and AI related spend was similar to Q4. Cash flow from operations was $37.2 billion, up 29% driven by strong cloud billings and collections. Free cash flow was $23.3 billion, up 18% year-over-year, reflecting higher capital expenditures to support our cloud and AI offerings. For the full-year, cash flow from operations surpassed $100 billion for the first time, reaching $119 billion. This quarter, other income and expense was negative $675 million, more favorable than anticipated with lower-than-expected interest expense and higher-than-expected interest income. Our losses on investments accounted for under the equity method were as expected. Our effective tax rate was approximately 19%, higher than anticipated due to a state tax law signed in June that was effective retroactively. And finally, we returned $8.4 billion to shareholders through dividends and share repurchases, bringing our total cash returned to |
4,984 | MSFT | 4 | 2,024 | 2024-07-30 17:30:00 | Microsoft Corporation | 21,835 | finally, we returned $8.4 billion to shareholders through dividends and share repurchases, bringing our total cash returned to shareholders to over $34 billion for the full fiscal year. Now, moving to our outlook. My commentary for both the full-year and next quarter is on a U.S. dollar basis unless specifically noted otherwise. Let me start with some full year commentary for FY2025. First, FX. Assuming current rates remain stable, we expect FX to have no meaningful impact to full-year revenue, COGS, or operating expense growth. Next, we continue to expect double-digit revenue and operating income growth as we focus on delivering differentiated value for our customers. To meet the growing demand signal for our AI and cloud products, we will scale our infrastructure investments with FY2025 capital expenditures expected to be higher than FY2024. As a reminder, these expenditures are dependent on demand signals and adoption of our services that will be managed through the year. As scaling these investments drives growth in COGS, we will remain disciplined on operating expense management. Therefore, we expect FY2025 OpEx growth to be in the single digits. And given our focused commitment to managing at the operating margin level, we still expect FY2025 operating margins to be down only about one point year-over-year. And finally, we expect our FY2025 effective tax rate to be around 19%. Now, to the outlook for our first quarter. Based on current rates, we expect FX to decrease total revenue and segment level revenue growth by less than one point. We expect FX to decrease COGS growth by less than one point and to have no meaningful impact to operating expense growth. In commercial bookings, increased long-term commitments to our platform and strong execution across core annuity sales motions should drive healthy growth on a growing expiry base. As a reminder, larger long-term Azure contracts, which are more unpredictable in their timing, can drive increased quarterly volatility in our bookings growth rate. Microsoft |
4,985 | MSFT | 4 | 2,024 | 2024-07-30 17:30:00 | Microsoft Corporation | 21,835 | which are more unpredictable in their timing, can drive increased quarterly volatility in our bookings growth rate. Microsoft Cloud gross margin percentage should be roughly 70%, down year-over-year driven by the impact of scaling our AI infrastructure. We expect capital expenditures to increase on a sequential basis given our cloud and AI demand, as well as existing AI capacity constraints. As a reminder, there can be quarterly spend variability from cloud infrastructure buildouts and the timing of delivery of finance leases. Next to segment guidance. In Productivity and Business Processes, we expect revenue to grow between 10% and 11% in constant currency, or US$20.3 to US$20.6 billion. In Office Commercial, revenue growth will again be driven by Office 365 with seat growth across customer segments and ARPU growth through E5 and Copilot for Microsoft 365. We expect Office 365 revenue growth to be approximately 14% in constant currency. In our on-premises business, we expect revenue to decline in the mid to high-teens. In Office consumer, we expect revenue growth in the low to mid-single digits, driven by Microsoft 365 subscriptions. For LinkedIn, we expect revenue growth in the high single digits driven by continued growth across all businesses. And in Dynamics, we expect revenue growth in the low to mid-teens driven by Dynamics 365. For Intelligent Cloud we expect revenue to grow between 18% and 20% in constant currency, or US$28.6 billion to US$28.9 billion. Revenue will continue to be driven by Azure which, as a reminder, can have quarterly variability primarily from our per-user business and in-period revenue recognition depending on the mix of contracts. In Azure, we expect Q1 revenue growth to be 28% to 29% in constant currency. Growth will continue to be driven by our consumption business, inclusive of AI, which is growing faster than total Azure. We expect the consumption trends from Q4 to continue through the first half of the year. This includes both AI demand impacted by capacity constraints and |
4,986 | MSFT | 4 | 2,024 | 2024-07-30 17:30:00 | Microsoft Corporation | 21,835 | from Q4 to continue through the first half of the year. This includes both AI demand impacted by capacity constraints and non-AI growth trends similar to June. Growth in our per-user business will continue to moderate. And in H2, we expect Azure growth to accelerate as our capital investments create an increase in available AI capacity to serve more of the growing demand. In our on-premises server business, we expect revenue to decline in the low single digits as continued hybrid demand will be more than offset by lower transactional purchasing. And in Enterprise and partner services, revenue should decline in the low single digits. In More Personal Computing, we expect revenue to grow between 9% and 12% in constant currency, or US$14.9 billion to US$15.3 billion. Windows OEM revenue growth should be relatively flat, roughly in line with the PC market. In Windows commercial products and cloud services, customer demand for Microsoft 365 and our advanced security solutions should drive revenue growth in the mid-single digits. As a reminder, our quarterly revenue growth can have variability primarily from in-period revenue recognition depending on the mix of contracts. In Devices, revenue growth should be in the low to mid-single digits. Search and news advertising ex-TAC revenue growth should be in the mid to high-teens. This will be higher than overall Search and news advertising revenue growth, which we expect to be in the low single digits. And in Gaming, we expect revenue growth in the mid-30s, including approximately 40 points of net impact from the Activision acquisition. We expect Xbox content and services revenue growth in the low to mid-50s, driven by the net impact from the Activision acquisition. Hardware revenue will again decline year-over-year. Now back to company guidance. We expect COGS between US$19.95 billion to US$20.15 billion, including approximately $700 million from purchase accounting, integration, and transaction-related costs from the Activision acquisition. We expect operating expense of |
4,987 | MSFT | 4 | 2,024 | 2024-07-30 17:30:00 | Microsoft Corporation | 21,835 | purchase accounting, integration, and transaction-related costs from the Activision acquisition. We expect operating expense of US$15.2 billion to US$15.3 billion, including approximately $200 million from purchase accounting, integration, and transaction-related costs from the Activision acquisition. Other income and expense should be roughly negative $650 million driven by losses on investments accounted for under the equity method as interest income will be mostly offset by interest expense. As a reminder, we are required to recognize gains or losses on our equity investments, which can increase quarterly volatility. We expect our Q1 effective tax rate to be approximately 19%. In closing, we remain focused on delivering innovations that matter to our global customers of every size. That focus extends to delivering on our financial commitments as well. We delivered operating margin growth of nearly three points year-over-year even as we accelerated our AI investments, completed the Activision acquisition, and had a headwind from the change of useful lives last year. So, as we begin FY2025, we will continue to invest in the cloud and AI opportunity ahead aligned, and if needed adjusted, to the demand signals we see. We are committed to growing our leadership across our commercial cloud and within that, the AI platform, and we feel well positioned as we start FY2025. With that, let's go to Q&A, Brett. |
4,988 | MSFT | 4 | 2,024 | 2024-07-30 17:30:00 | Microsoft Corporation | 21,835 | Brett Iversen: Thanks, Amy. We'll now move over to Q&A. Out of respect for others on the call, we request that participants please only ask one question. Operator, can you please repeat your instructions?
Operator: [Operator Instructions] And our first question comes from the line of Keith Weiss with Morgan Stanley. Please proceed.
Keith Weiss: Excellent. Thank you, guys for taking the question and congratulations on another great quarter and really solid overall fiscal year. Right now, there's a industry debate raging around the CapEx requirements around Generative AI and whether the monetization is actually going to match with that. And I think the question for you guys, from a Microsoft perspective, is CapEx still an appropriate leading indicator for cloud growth? Or does the shift in gross margin profile change that equation? Or said another way, maybe can you give us a little bit more help in understanding the timing between the CapEx investments and the yield on those investments? Thank you. |
4,989 | MSFT | 4 | 2,024 | 2024-07-30 17:30:00 | Microsoft Corporation | 21,835 | Satya Nadella: Thank you, Keith. Let me start, and then Amy can add to this. I think, I would say we primarily start right now from the demand side. What I mean by that is what's the product – shape of the product portfolio, what we learned even from the cloud transition, which, as you know, Keith, was similar in the sense it was both a knowledge-intensive and a capital-intensive transition. We needed to have the product portfolio where there was the right mix of, I'll call it, infrastructure meters as well as SaaS applications. So that's the first thing that we are looking at. And how is that value landing with customers and what's the growth rate. So when I think about what's happening with M365 Copilot as perhaps the best Office 365 or M365 suite we have had, the fact that we're getting recurring customers, so our customers coming back buying more seats. So GitHub Copilot now being bigger than even GitHub when we bought it. What's happening in the contact center with Dynamics. So I would say – and obviously, the Azure AI growth, that's the first place we look at. That then drives bulk of the CapEx spend, basically, that's the demand signal because you got to remember, even in the capital spend, there is land and there is data center build, but 60-plus percent is the kit, that only will be bought for inferencing and everything else if there is demand signal, right? So that's, I think, the key way to think about capital cycle even. The asset, as Amy said, is a long-term asset, which is land and the data center, which, by the way, we don't even construct things fully, we can even have things which are semi-constructed, we call [cold] (ph) shelves and so on. So we know how to manage our CapEx spend to build out a long-term asset and a lot of the hydration of the kit happens when we have the demand signal. There is definitely spend for training. Even there, of course, we will only be scaling training as we see the demand accrue in any given period in time. So I would say it's more important to manage, to capture |
4,990 | MSFT | 4 | 2,024 | 2024-07-30 17:30:00 | Microsoft Corporation | 21,835 | training as we see the demand accrue in any given period in time. So I would say it's more important to manage, to capture the opportunity with the right product portfolio that's driving value. And on that front, I feel good about the breadth of Microsoft offering, whether it's in consumer side, whether it's on commercial per seat side or on the consumption meters, that's, I think, the fundamental driver. |
4,991 | MSFT | 4 | 2,024 | 2024-07-30 17:30:00 | Microsoft Corporation | 21,835 | Amy Hood: And Keith, I do think – and I really do appreciate how you phrased the question as well because I think the timing and some of the questions you all have had really led to how we were talking even about capital expense in our comments – in my comments today. Being able to maybe share a little more about that when we talked about roughly half of FY2024's total capital expense as well as half of Q4's expense, it's really on land and build and finance leases, and those things really will be monetized over 15 years and beyond. And they're incredibly flexible because we've built a consistent architecture first with the Commercial Cloud and second with the Azure stack for AI, regardless of whether the demand at the platform layer or at the app layer or through third parties and partners or, frankly, our first-party SaaS, it uses the same infrastructure. So it's long-lived flexible assets. And if you think about it, that way, you can see what we're doing and focused on is building out this network in parallel across the globe. Because when we did this last transition, the first transition to the Cloud, which seems a long time ago sometimes, it rolled out quite differently. We rolled out more geo by geo and this one because we have demand on a global basis. We are doing it on a global basis, which is important. We have large customers in every geo. And so hopefully, with that sort of shape of our capital expense, it helps people see how much of that is sort of near-term monetization driver as well as a much longer duration.
Keith Weiss: That's super helpful. Thank you very much.
Brett Iversen: Thanks, Keith. Operator, next question please.
Operator: And the next question comes from the line of Mark Moerdler with Bernstein Research. Please proceed. |
4,992 | MSFT | 4 | 2,024 | 2024-07-30 17:30:00 | Microsoft Corporation | 21,835 | Operator: And the next question comes from the line of Mark Moerdler with Bernstein Research. Please proceed.
Mark Moerdler: Thank you very much. Thank you for taking the question. And congrats on a strong year. GenAI has been a bit of rollercoaster of a tech over the last year with periods of acceleration, high expectations and the expectations drop as reality kicked in. With Azure growth we've seen this quarter and O365 Commercial, not yet fully visible in numbers even though Amy, you gave us a lot of color on it. Two quick parts to the question. Satya, how should we think about what it's going to take for GenAI to become more real across the industry and for it to become more visible within your SaaS offerings? And Amy, with Cloud, it took time for margins to improve. It looks like with AI, it's happening quicker. Can you give us a sense of how you think about the margin impact near-term and long-term from all the investment on AI? Thank you. |
4,993 | MSFT | 4 | 2,024 | 2024-07-30 17:30:00 | Microsoft Corporation | 21,835 | Satya Nadella: Yes. Thanks again, Mark, for the question. So to me, look, at the end of the day, GenAI is just software. So it is really translating into fundamentally growth on what has been our M365 SaaS offering with a newer offering that is the Copilot SaaS offering, which today is on a growth rate that's faster than any other previous generation of software we launched as a suite in M365. That's, I think, the best way to describe it. I mean the numbers I think we shared even this quarter are indicative of this, Mark. So if you look at it, we have both the landing of the seats itself quarter-over-quarter that is growing 60%, right? That's a pretty good healthy sign. The most healthy sign for me is the fact that customers are coming back there. That is the same customers with whom we landed the seats coming back and buying more seats. And then the number of customers with 10,000-plus seats doubled, right? It's 2x quarter-over-quarter. That, to me, is a healthy SaaS core business. And on top of that, some of the things that Amy shared around Dynamic. That's another exciting place for us, which is one, we are gaining share. We are – Dynamics with the GenAI built-in is sort of really biz app, it's probably the category that gets completely transformed with GenAI. Contact centers being a great example. We ourselves are on course to save hundreds of millions of dollars in our own customer support and contact center operations. I think we can drive that value to our customers. And then on the Azure side, you see the numbers very clearly. In fact, I think last quarter is when we started giving you that. You saw an acceleration of that this quarter. One of the other pieces, Mark, is AI doesn't sit on its own, right? So it's just for – we have a concept of design wins in Azure. So in fact, 50% of the folks who are using Azure AI are also using a data meter. That's very exciting to us because the most important thing in Azure is to win workloads in the enterprise. And that is starting to happen. And these are |
4,994 | MSFT | 4 | 2,024 | 2024-07-30 17:30:00 | Microsoft Corporation | 21,835 | because the most important thing in Azure is to win workloads in the enterprise. And that is starting to happen. And these are generational things once they get going with you. So that's, I think, how we think about it at least when I look at what's happening on our demand side. |
4,995 | MSFT | 4 | 2,024 | 2024-07-30 17:30:00 | Microsoft Corporation | 21,835 | Amy Hood: And, Mark, to answer the second half of your question on margin improvement, looking different than it did through the last cloud cycle. That's primarily for a reason I've mentioned a couple of times. We have a consistent platform. So because we're building to one Azure AI stack, we don't have to have multiple infrastructure investments. We're making one. We're using that internally first-party, and that's what we're using with customers to build on as well as ISVs. So it does, in fact, make margins start off better and obviously scale consistently.
Mark Moerdler: Thank you.
Brett Iversen: Thanks, Mark. Operator, next question please.
Operator: The next question comes from the line of Kash Rangan with Goldman Sachs. Please proceed.
Kasthuri Rangan: Hi. Thank you very much and congrats on a great year – fiscal year ending. A question for you, Amy. When you look at the CapEx, how do you ring efficiencies out of the CapEx? You've disclosed that 50% of the infrastructure, the other 50% tech, is very useful. So in other words, do you have to keep growing CapEx at these elevated rates? Or could you slow down CapEx and still get that consistent revenue growth rate in your Azure and Generative AI? That's the main question in my mind? Thank you so much. |
4,996 | MSFT | 4 | 2,024 | 2024-07-30 17:30:00 | Microsoft Corporation | 21,835 | Amy Hood: Thanks, Kash. That's a very good question. There's really two pieces, I think, as I heard your question that I would reflect on. The first is, could we see sort of consistent revenue growth without maybe what you would say is more of this sort of elevated capital expense number or something that continues to accelerate. And the answer to that is yes because there's two different pieces, right? You're seeing half of this go toward long-term builds that Satya mentioned, the pace at which we fill those builds with CPUs or GPUs will be demand-driven. And so if we see differences in demand signal, we can throttle that investment on the CPU side, which we've done for I guess, a long time at this point, as I reflect, and we'll use all that same learning and demand signal understand to do the same thing on the GPU side. And so you're right that you could see relatively consistent revenue patterns and yet see these inconsistencies and capital spend quarter-to-quarter. The other thing, I would note, Kash, is you'll also notice there's a growing distinction between our CapEx number, and on occasion, the cash that we pay for PP&E and you're going to start to see that more often in this period because it happens when we use leases. Leases sort of show up all at once. And so you'll see a little bit more volatility. I've mentioned it back in my comments before, but I mentioned it again just because you're starting to see that distinction in my comments and hopefully that's helpful context. |
4,997 | MSFT | 4 | 2,024 | 2024-07-30 17:30:00 | Microsoft Corporation | 21,835 | Satya Nadella: Just one other thing, Amy, if I wanted to add. I think as people think about capital spend, I think it's important to separate out leases from build. And when it comes to build, I think it's important for us to think about – we think about it in terms of what's the total percentage of cost that goes into each line item, land which obviously has a very different duration and a very different lead time. So those are the other two considerations. We think about lead time and duration of the asset. Land, network, construction, the system or the kit and then the ongoing cost. And so if you think about it that way, then you know how to even adjust, if you will, the capital spend based on demand signal.
Kasthuri Rangan: Thank you. It was triggered by the jump in CapEx. And as Amy pointed out, you're guiding to accelerating Azure revenue growth rate, which, I guess, follows the CapEx surge. Thank you so much once again.
Brett Iversen: Thanks, Kash. Operator, next question please.
Operator: The next question comes from the line of Brent Thill with Jefferies. Please proceed.
Brent Thill: Thanks. Amy, the magnitude to beat this quarter was a little lower than we've seen in the past. Was there anything unusual on sales cycle that close rates that you saw? Thanks.
Amy Hood: Thanks, Brent. Actually, no. As I was talking on the quarter, I mean Commercial bookings were much better than we expected going into the quarter. Commitments were very good execution across both the core sort of annuity renewal motion was good, as expected, the larger long-term commitments were better than we expected. So Brent, I would not say there was anything really unusual in how I thought about what we saw in our commercial execution through the quarter.
Brent Thill: Great. Thank you.
Brett Iversen: Thanks, Brent. Operator, next question please.
Operator: The next question comes from the line of Karl Keirstead with UBS. Please proceed. |
4,998 | MSFT | 4 | 2,024 | 2024-07-30 17:30:00 | Microsoft Corporation | 21,835 | Operator: The next question comes from the line of Karl Keirstead with UBS. Please proceed.
Karl Keirstead: Okay. Great. So maybe I'll direct this to Amy. Amy, I know when you set your Azure guidance, you're always looking to meet or beat the high-end. The 30% you put up in the June quarter, amazing number given the scale of Azure, but it did come in at the low end of your range. And I'd just love for you to maybe elaborate on the delta. I guess as I reflect on what you said in your comments. There's two things that I heard you say. One, it sounded like there's persistent capacity constraints that you think might get alleviated in the second half? And then secondly, you mentioned perhaps some modest softness in Europe. I presume that's a little bit more economic rather than Azure specific. Is that the right way to frame the performance in the quarter? Thank you.
Amy Hood: Thanks, Karl. Yes, that's exactly right. Maybe I'll just repeat it, just so people can hear it in my words as well to that 30% to 31% guide for Q4 and coming in at the lower end of 30%. You're exactly right. The distinguishing between being at the higher end or at the lower end, really was some softness we saw in a few European geos on non-AI consumption really made the difference in that number. And we've assumed that going forward into H1 inclusive of my guide 28% to 29% going forward. And then let me separate which was your larger point, which is what are the other factors you see ongoing. Number one, you're right, capacity constraints, particularly on AI and Azure will remain in Q4 and will remain in H1. So hopefully, that's helpful.
Karl Keirstead: Yes. Thank you, Amy.
Brett Iversen: Thanks, Karl. Operator, next question, please.
Operator: The next question comes from the line of Brad Zelnick with Deutsche Bank. Please proceed. |
4,999 | MSFT | 4 | 2,024 | 2024-07-30 17:30:00 | Microsoft Corporation | 21,835 | Operator: The next question comes from the line of Brad Zelnick with Deutsche Bank. Please proceed.
Brad Zelnick: Great. Thank you very much. Amy, with Azure demand, once again greater than available capacity, I appreciate the CapEx investments and the build-out and acceleration you expect in the back half. But as we think about Cloud capacity and AI services specifically, can you talk about both the near-term and long-term strategy around the AI partnerships that you're signing with the likes of Oracle and Cohere, for example? Thank you.
Amy Hood: Thanks, Brad. Maybe separate a couple of things. We are – and we've talked about now for quite a few quarters, we are constrained on AI capacity. And because of that, actually, we've, to your point, have signed up with third parties to help us as we are behind with some leases on AI capacity. We've done that with partners who are happy to help us extend the Azure platform, to be able to serve this Azure AI demand. And you do see us investing quite a bit as we've talked about in builds so that we can get back in a more balanced place.
Satya Nadella: Yes. I mean, to me, it's no different than leases that we would have done in the past. These – you could even say sometimes buying from Oracle, maybe even more efficient leases because they're even shorter date.
Brad Zelnick: Excellent. Thanks for the color.
Brett Iversen: Thanks, Brad. Operator, next question please.
Operator: The next question comes from the line of Mark Murphy with JPMorgan. Please proceed. |
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