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1 Dear shareholders, colleagues, customers, and partners,  
We are living through a time of historic challenge and opportunity. As I write this, the world faces ongoing economic, social , 
and geopolitical volatility. At the same time, we have entered a new age of AI that will fundamentally transform productivity  
for every individual, organization, and industry on earth, and help us address some of our most pressing challenges.  
This next generation of AI will reshape every software category and every business, including our own. Forty -eight years 
after its founding, Microsoft remains a consequential company because time and time again —from PC/Server, to 
Web/Internet, to Cloud/Mobile —we have adapted to technological paradigm shifts. Today, we are doing so once again, as 
we lead this new era.  
Amid this transformation, our mission to empower every person and every organization on the planet to achieve 
more  remains constant. As a company, we believe we can be the democratizing force for this new generation of technology 
and the opportunity it will help unlock for every co untry, community, and individual, while mitigating its risks.  
Here are just a few examples of how we are already doing this:  
• Leading electronic health records vendor Epic is addressing some of the biggest challenges facing the 
healthcare industry today —including physician burnout —by deploying a wide range of copilot solutions built on 
Azure OpenAI Service and Dragon Ambient eXperience Copilot.  
• Mercado Libre is reducing the time its developers spend writing code by more than 50  percent with GitHub 
Copilot, as the company works to democratize e -commerce across Latin America.  
• Mercedes -Benz is making its in -car voice assistant more intuitive for hundreds of thousands of drivers using 
ChatGPT via the Azure OpenAI Service.  
• Lumen Technologies is helpin g its employees be more productive, enabling them to focus on higher value -
added activities, by deploying Microsoft 365 Copilot.  
• Nonprofit The Contingent is matching foster families with children in need using Dynamics 365, Power BI, and 
Azure, with an eye on using AI to amplify its work across the US.  
• And, Taiwan’s Ministry of Education has built an online platform to help elementary and high school students 
learn English using Azure AI.


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learn English using Azure AI.  
To build on this progress, we remain convicted on three things: First, we will maintain our lead as the top commercial cloud 
while innovating in consumer categories, from gaming to professional social networks. Second, because we know that 
maximum enterpri se value gets created during platform shifts like this one, we will invest to accelerate our lead in AI by 
infusing this technology across every layer of the tech stack. And, finally, we will continue to drive operating leverage, 
aligning our cost structur e with our revenue growth.  
As we make progress on these priorities, we delivered strong results in fiscal year 2023, including a record $211  billion in 
revenue and over $88  billion in operating income.  
A NEW ERA OF AI  
There are two breakthroughs coming together to define this new era of AI. The first is the most universal interface: natural 
language. The long arc of computing has, in many ways, been shaped by the pursuit of increasingly intuitive human -
computer interfaces —keyboards, mice, touch screens. We believe we have now arrived at the next big step forward —
natural language —and will quickly go beyond, to see, hear, interpret, and make sense of our intent and the world around 
us.  
  
The second is the emergence of a powerful new reasoning engine. For y ears, we’ve digitized daily life, places, and things 
and organized them into databases. But in a world rich with data, what has been most scarce is our ability to reason over 
it. This generation of AI helps us interact with data in powerful new ways —from c ompleting or summarizing text, to detecting 
anomalies and recognizing images —to help us identify patterns and surface insights faster than ever.  
Together, these two breakthroughs will unlock massive new opportunity. And, in fact, just last month we announ ced our 
vision for Copilot, an everyday AI companion. We are building Copilot into all our most used products and experiences and 
allowing people to summon its power as a standalone app as well. Just like you boot up an OS to access applications or 
use a b rowser to visit websites today, our belief is that you will invoke a Copilot to do all those activities and more: to shop,


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2 As a company, any time we approach a transition like this, we do so responsibly. We believ e AI should be as empowering 
across communities as it is powerful, and we’re committed to ensuring it is responsibly built and designed, with safety in 
mind from the outset.  
OUR OPPORTUNITY  
Every customer solution area and every layer of our tech stack w ill be reimagined for the AI era. And that’s exactly what 
we’ve already begun to do:  
Infrastructure  
Four years ago, we first invested in our AI supercomputer, with a goal of building the best cloud for training and inference.  
Today, it’s being used by ou r partner OpenAI to power its best -in-class foundation models and services, including one of 
the fastest -growing consumer apps ever —ChatGPT. NVIDIA, as well as leading AI startups like Adept and Inflection, is also 
using our infrastructure to build its own  breakthrough models.  
More broadly, organizations continue to choose our ubiquitous computing fabric —from cloud to edge —to run their mission -
critical applications. We continued to see more cloud migrations to Azure this past fiscal year, as it remains ear ly when it 
comes to the long -term cloud opportunity. And we also continue to lead in hybrid computing with Azure Arc, which now has 
18,000 customers.  
Data and AI  
Every AI app starts with data, and having a comprehensive data and analytics platform is more important than ever. Our 
Intelligent Data Platform brings together operational databases, analytics, and governance so organizations can spend 
more time creating value and less time integrating their data estate. We also introduced Microsoft Fabric this year, which 
unifies compute, storage, and governance with a disruptive business model.  
With Azure AI, we are making foundation models available as platforms to our  customers. We offer the best selection of 
industry -leading frontier and open models. In January, we made the Azure OpenAI Service broadly available, bringing 
together advanced models, including ChatGPT and GPT -4, with the enterprise capabilities of Azure.  More than 11,000 
organizations across industries are already using it for advanced scenarios like content and code generation. Meta chose 
us this summer as its preferred cloud to commercialize its Llama family of models. And, with Azure AI Studio, we prov ide a


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full lifecycle toolchain customers can use to ground these models on their own data, create prompt workflows, and help 
ensure they are deployed and used safely.  
Digital and app innovation  
GitHub Copilot is fundamentally transforming developer productivity, helping developers complete coding tasks 55  percent 
faster. More than 27,000 organizations have chosen GitHub Copilot for Business, and to date more than 1  million people 
have used GitHub  Copilot to code faster. We also announced our vision for the future of software development with GitHub 
Copilot X, which will bring the power of AI throughout the entire software development lifecycle. All up, GitHub surpassed 
$1 billion in annual recurri ng revenue for the first time this fiscal year.  
We’re also applying AI across our low -code/no -code toolchain to help domain experts across an organization automate 
workflows, create apps and webpages, build virtual agents, or analyze data, using just natu ral language with copilots in 
Power Platform. More than 63,000 organizations have used AI -powered capabilities in Power Platform to date.  
Business applications  
We are bringing the next generation of AI to employees across every job function and every lin e of business with Dynamics 
365 Copilot, which works across CRM and ERP systems to reduce burdensome tasks like manual data entry, content 
generation, and notetaking. In fact, our own support agents are using Copilot in Dynamics 365 Customer Service to res olve 
more cases faster and without having to call on peers to help. With our Supply Chain Platform, we’re helping customers 
apply AI to predict and mitigate disruptions. And, with our new Microsoft Sales Copilot, sellers can infuse their customer 
interacti ons with data from CRM systems —including both Salesforce and Dynamics —to close more deals.


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3 All up, Dynamics surpassed $5  billion in revenue over the past fiscal year, with our customer experience, service, and 
finance and supply chain businesses each surp assing $1  billion in annual sales.  
Industry  
Across industries, we are rapidly becoming the partner of choice for any organization looking to generate real value from 
AI. In healthcare, for example, we introduced the world’s first fully automated clinical  documentation application, DAX 
Copilot. The application helps physicians reduce documentation time by half, freeing them to spend more time face to face 
with patients. And Epic will integrate it directly into its electronic health records system.  
And, in  retail, we introduced new tools to help companies manage their day -to-day operations and digitize their physical 
stores.  
Modern work  
We are rapidly evolving Microsoft 365 into an AI -first platform that enables every individual to amplify their creativit y and 
productivity, with both our established applications like Office and Teams, as well as new apps like Designer, Stream, and 
Loop. Microsoft 365 is designed for today’s digitally connected, distributed workforce.  
This year, we also introduced a new pi llar of customer value with Microsoft 365 Copilot, which combines next -generation AI 
with business data in the Microsoft Graph and Microsoft 365 applications to help people be more productive and unleash 
their creativity at work. Just last month, I was exc ited to announce that we will make Microsoft 365 Copilot generally available 
to our commercial customers later this year.  
We continue to build momentum in Microsoft Teams across collaboration, chat, meetings, and calls. We introduced a new 
version of Team s that delivers up to two times faster performance, while using 50  percent less memory. We also introduced 
Teams Premium to meet enterprise demand for AI -powered features like intelligent meeting recaps. All up, Teams usage 
surpassed 300  million monthly ac tive users this year.  
With Microsoft Viva, we have created a new category for employee experience. Copilot in Viva offers leaders a new way to 
build high -performance teams by prioritizing both productivity and employee engagement. This year, Viva surpasse d 
35 million monthly active users.  
  
Security


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35 million monthly active users.  
  
Security  
As the rate and pace of cyberthreats continue to accelerate, security is a top priority for every organization. Our 
comprehensive, AI -powered solutions give defenders the advantage. With Security Copilot, we’ re combining large language 
models with a domain -specific model informed by our threat intelligence and 65 trillion daily security signals, to transform 
every aspect of security operations center productivity.  
All up, more than 1  million organizations now  count on our comprehensive, AI -powered solutions to protect their digital 
estates, and our security business surpassed $20  billion in annual revenue, as we help protect customers across clouds 
and endpoint platforms.  
Search, advertising, and news  
We are  reshaping daily search and web habits with our new Bing and Microsoft Edge browser, which brings together search, 
browsing, chat, and AI into one unified experience to deliver better search, more complete answers, a new chat experience, 
and the ability to  generate content. We think of these tools as an AI copilot for the web.  
We are also bringing these breakthrough capabilities to businesses, with Bing Chat Enterprise, which offers commercial 
data protection, providing an easy on -ramp for any organization  looking to get the benefit of next -generation AI today.  
Although it’s early in our journey, Bing users engaged in more than 1  billion chats and created more than 750  million images 
over the past year as they apply these new tools to get things done. And Edge has taken share for nine consecutive quarters.


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4 More broadly, we continue to expand our opportunity in advertising. This year, Netflix chose us as its exclusive technology 
and sales partner for its first ad -supported subscription offering, a validatio n of the differentiated value we provide to any 
publisher looking for a flexible partner to build and innovate with them.  
LinkedIn  
The excitement around AI is creating new opportunities across every function —from marketing, sales, service, and finance, 
to software development and security. And LinkedIn is increasingly where people are going to learn, discuss, and uplevel 
their skills.  We are using AI to help our members and customers connect to opportunities and tap into the experiences of 
experts on the platform. In fact, our AI -powered articles are already the fastest -growing traffic driver to the network.  
All up, LinkedIn’s revenue  surpassed $15  billion for the first time this fiscal year, a testament to how mission critical the 
platform has become to help more than 950  million members connect, learn, sell, and get hired.  
Gaming  
In gaming, we are rapidly executing on our ambition to be the first choice for people to play great games whenever, 
wherever, and however they want. With Xbox Game Pass, we are redefining how games are distributed, played, and viewed. 
Content is the flywheel behind the service’s growth, and our pipeline has  never been stronger. It was especially energizing 
to release Starfield this fall to broad acclaim, with more than 10  million players in the first month post -launch alone.  
Earlier this month, we were thrilled to close our acquisition of Activision Blizzar d, and we look forward to sharing more in 
the coming months about how, together, we will bring the joy of gaming to more people around the world.  
  
Devices and creativity  
Finally, we’re turning Windows into a powerful new AI canvas with Copilot, which ro lled out as part of a Windows 11 update 
last month. It uniquely incorporates the context and intelligence of the web, your work data, and what you are doing in the 
moment on your PC to provide better assistance, while keeping your privacy and security at t he forefront. Overall, the 
number of devices running Windows 11 more than doubled in the past year. And we are also transforming how Windows is


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experienced and managed with Azure Virtual Desktop and Windows 365, which together surpassed $1  billion in annua l 
revenue for the first time.  
OUR RESPONSIBILITY  
As we pursue our opportunity, we are also working to ensure technology helps us solve problems —not create new ones. 
To do this, we focus on four enduring commitments that are central to our mission and that take on even greater importance 
in this new era. For us, these commitments are more than just words. They’re a guide to help us make decisions across 
everything we do —as we design and develop products, shape business processes and policies, help our customers thrive, 
build partnerships, and more —always a sking ourselves critical questions to ensure our actions are aligned with them.  
How can we expand opportunity?  
First, we believe access to economic growth and opportunity should reach every person, organization, community, and 
country. And although AI ca n serve as a catalyst for opportunity and growth, we must first ensure everyone has access to 
the technologies, data, and skills they need to benefit.  
To achieve this, we are focused on getting technology into the hands of nonprofits, social entrepreneurs , and other civil 
society organizations to help them digitally transform, so they can help address some of society’s biggest challenges. This 
year, we provided nonprofits with over $3.8  billion in discounted and donated technology. Nearly 325,000 nonprofit s used 
our cloud. And to help them tap the potential of AI, we’re building new AI capabilities for fundraising, marketing, and progr am 
delivery.  
AI will displace some jobs, but it will also create new ones. That’s why we aim to train and certify 10  millio n people by 2025 
with the skills for jobs and livelihoods in an increasingly digital economy. Since July 2020, we’ve helped 8.5  million people, 
including 2.7  million this year. We’ve also focused on skilling women and underrepresented communities in cybers ecurity, 
working across 28 countries and with nearly 400 US community colleges to scale our efforts.  
Finally, to help people learn more about AI, we launched the first online Professional Certificate on Generative AI in


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partnership with LinkedIn Learning,  created AI tools for educators, and held our first AI Community Learning event in the 
US. These events will be replicated around the world and localized in 10 languages over the next year. We also partnered


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5 to launch a Generative AI Skills Grant Challenge  to explore how nonprofit, social enterprise, and research or academic 
institutions can empower the workforce to use this new generation of AI.  
How can we earn trust?  
To create positive impact with technology, people need to be able to trust the technolo gies they use and the companies 
behind them. For us, earning trust spans the responsible use of AI, protecting privacy, and advancing digital safety and 
cybersecurity.  
Our commitment to responsible AI is not new. Since 2017, we’ve worked to develop our re sponsible AI practice, recognizing 
that trust is never given but earned through action.  
We have translated our AI principles into a core set of implementation processes, as well as tools, training, and practices 
to support compliance. But internal program s aren’t enough. We also enable our customers and partners to develop and 
deploy AI safely, including through our AI customer commitments and services like Azure AI Studio, with its content safety 
tooling and access to our Responsible AI dashboard.  
Buildi ng AI responsibly requires that we work with other industry leaders, civil society, and governments to advocate for AI 
regulations and governance globally. This year, we released our Governing AI Blueprint, which outlines concrete legal and 
policy recommen dations for AI guardrails. We are signatories to the eight voluntary commitments developed with the US 
White House, and proud of the six additional commitments we’ve made to further strengthen and operationalize the 
principles of safety, security, and trus t.  
The era of AI heightens the importance of cybersecurity, and we deepened our work across the private and public sectors 
to improve cyber -resilience. We’ve continued to support Ukraine in defending critical infrastructure, detecting and disrupting 
cyber attacks and cyberinfluence operations, and providing intelligence related to these attacks. Our Microsoft Threat 
Analysis Center team produced more than 500 intelligence reports to help keep customers and the public informed. And we 
published our third ann ual Microsoft Digital Defense Report, sharing our learnings and security recommendations.  
We also remain committed to creating safe experiences online and protecting customers from illegal and harmful content 
and conduct, while respecting human rights. We supported the Christchurch Call Initiative on Algorithmic Outcomes to


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address terrorist an d violent and extremist content online. And through the World Economic Forum’s Global Coalition for 
Digital Safety, we co -led the development of new global principles for digital safety.  
Protecting customers’ privacy and giving them control of their data is more important than ever. We’ve begun our phased 
rollout of the EU Data Boundary, supporting our commercial and public sector customers’ need for data sovereignty. And 
each month, more than 3  million people exercise their data protection rights through our privacy dashboard, making 
meaningful choices about how their data is used.  
How can we protect fundamental rights?  
In an increasingly digital world, we have a responsibility to promote and protect people’s fundamental rights and address 
the challenges  technology creates. For us, this means upholding responsible business practices, expanding connectivity 
and accessibility, advancing fair and inclusive societies, and empowering communities.  
In 2023, we worked diligently to anticipate harmful uses of our  technology and put guardrails on the use of technologies that 
are consequential to people’s lives or legal status, create risk of harm, or threaten human rights. We will continue to asses s 
the impact of our technologies, engage our stakeholders, and model  and adopt responsible practices and respect for human 
rights —including across our global supply chain.  
Today, our lives are more connected than ever. Access to education, employment, healthcare, and other critical services is 
increasingly dependent on te chnology. That’s why we’ve expanded our commitment to bring access to affordable high -
speed internet to a quarter of a billion people around the world, including 100  million people in Africa, by the end of 2025. 
Since 2017, we’ve helped bring internet acce ss to 63  million people, a key first step to ensuring communities will have 
access to AI and other digital technologies.  
This year, we also continued working toward our five -year commitment to bridge the disability divide with a focus on helping 
close the  accessibility knowledge gap. Seven hundred and fifty -thousand learners enriched their understanding of disability 
and accessibility in partnership with LinkedIn Learning, Teach Access, and the Microsoft disability community.


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6 In addition, we’re stepping u p efforts to combat online disinformation through new media content provenance technologies —
enabling users to verify if an image or video was generated by AI. We continued our efforts to promote racial equity across 
Microsoft, our ecosystem, and our commun ities, including our work to advance justice reform through data -driven insights. 
And we provided support in response to eight humanitarian disasters, including committing $540  million of support to those 
who have been impacted by the War in Ukraine.  
  
Finally, recognizing AI’s potential to advance human rights and humanitarian action, we worked on several AI for 
Humanitarian Action projects. Together with our partners, we’re building the capabilities to identify at -risk communities, 
estimate seasonal hung er, predict malnutrition, and assist in disease identification.  
How can we advance sustainability?  
Climate change is the defining issue of our generation, and addressing it requires swift, collective action and technological  
innovation. We are committed to meeting our own goals while enabling others to do the same. That means taking 
responsibility for our operational footprint and accelerating progress through technology.  
We continue to see extreme weather impacting communities globally. To meet the urge nt need, this must be a decade of 
innovation and decisive action —for Microsoft, our customers, and the world.  
In our latest Environmental Sustainability Report, we shared our progress toward our 2030 sustainability targets across 
carbon, water, waste, and  ecosystems. In 2022, our overall carbon emissions declined by 0.5  percent while our business 
grew. Addressing scope 3 emissions, which account for the vast majority of our emissions, is arguably our ultimate 
challenge —one we’ll continue to tackle through our supply chain, policy advances, and industry -wide knowledge -sharing.  
We’ve provided just under 1  million people with access to clean water and sanitation, one of five pillars on our path to 
becoming water positive. And in our pursuit to be zero waste, we achieved a reuse and recycle rate of 82  percent for all our 
cloud hardware and diverted over 12,000 metric tons of solid operational waste from landfills and incinerators.  
We also continue to take responsibility for the impacts of our direct operations  on Earth’s ecosystems. We’ve contracted to


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protect 17,268 acres of land, over 50  percent more than the land we use to operate. Of that, 12,270 acres —the equivalent 
of approximately 7,000 soccer fields —were designated as permanently protected.  
Technology is a powerful lever to help us avoid the most severe impacts of climate change. That’s why we’re accelerating 
our investment in more efficient datacenters, clean energy, enhancements to the Microsoft Cloud for Sustainability and 
Planetary Computer, and gre en software practices. To date, through our Climate Innovation Fund, we’ve allocated more 
than $700  million to a global portfolio of 50+ investments spanning sustainable solutions in energy, industrial, and natural 
systems.  
Finally, we believe AI can be a  powerful accelerant in addressing the climate crisis. We expanded our AI for Good Lab in 
Egypt and Kenya to improve climate resilience for the continent. And, together with our partners, we launched Global 
Renewables Watch, a first -of-its-kind living atla s that aims to map and measure utility -scale solar and wind installations, 
allowing users to evaluate progress toward a clean energy transition.  
Although this new era promises great opportunity, it demands even greater responsibility from companies like o urs. As we 
pursue our four commitments, we focus on transparency —providing clear reporting on how we run our business and how 
we work with customers and partners. Our annual Impact Summary shares more about our progress and learnings this 
year, and our Rep orts Hub provides detailed reports on our environmental data, political activities, workforce demographics, 
human rights work, and more.  
OUR CULTURE  
There’s never been a more important time to live our culture. The way we work and the speed at which we w ork are 
changing.  
In an economy where yesterday’s exceptional is today’s expected, all of us at Microsoft will need to embrace a growth 
mindset and, more importantly, confront our fixed mindsets as our culture evolves. It will take everyday courage to 
reformulate what innovation, business models, and sales motions look like in this new era. As a high -performance 
organization, we aspire to help our employees maximize their economic opportunity, while simultaneously helping them


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7 learn and grow professionally  and connect their own passion and purpose with their everyday work and the company’s 
mission.  
To be successful, we need to be grounded in what our customers and the world need. We need to innovate and collaborate 
as One Microsoft. And we need to actively  seek diversity and embrace inclusion to best serve our customers and create a 
culture where everyone can do their best work. To empower the world, we need to represent the world. To that end, we 
remain focused on increasing representation and strengthenin g our culture of inclusion. Even as we navigated challenges 
this year, our company continued to be the most globally diverse it’s ever been.  
Giving also remains core to our culture. This year, more than 105,000 employees gave $242  million (including company 
match) to over 35,000 nonprofits in 116 countries. And our employees volunteered over 930,000 hours to causes they care 
about.  
I am deeply grateful to our employees for their commitment to the company and their communities, and how they are living 
our mission and culture every day in a changing company and world.  
**  
In closing, this is Microsoft’s moment. We have an incredible o pportunity to use this new era of AI to deliver meaningful 
benefits for every person and every organization on the planet.  
On New Year’s Day, I saw a tweet from Andrej Karpathy, Tesla’s former director of AI who now works at OpenAI, about 
how GitHub Copil ot was writing about 80  percent of his code, with 80  percent accuracy. Two days later, I saw a stunning 
example of work we’ve done with the government of India’s Ministry of Electronics and IT, which is applying an AI model so 
farmers in rural areas can in teract with government resources in their native languages.  
Think about that: A foundation model that was developed on the West Coast of the United States is already transforming 
the lives of both elite developers and rural farmers on the other side of th e globe. We’ve not seen this speed of diffusion 
and breadth of impact in the tech industry before.  
As a company, this is our moment to show up and responsibly build solutions that drive economic growth and benefit every


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community, country, industry, and p erson. If we do it well, the world will do well, and Microsoft will do well too. I’ve never 
been more confident that we will deliver on this promise together in the days, months, and years to come.  
  
  
 
Satya Nadella  
Chairman and Chief Executive Officer   
October  16, 2023


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8   
ISSUER PURCHASES OF EQUITY SECURITIES, DIVIDENDS, AND STOCK PERFORMANCE  
MARKET AND STOCKHOLDERS  
Our common stock is traded on the NASDAQ Stock Market under the symbol MSFT. On July  24, 2023, there were 83,883 
registered holders of record of our common stock.  
SHARE REPURCHASES AND DIVIDENDS  
Share Repurchases  
On September  18, 2019, our Board of Directors approved a share repurchase program authorizing up to $40.0  billion in 
share repurchases. This share repurchase program commenced  in February 2020 and was completed in November 2021.  
On September  14, 2021, our Board of Directors approved a share repurchase program authorizing up to $60.0  billion in 
share repurchases. This share repurchase program commenced in November 2021, following completion of the program 
approved on September  18, 2019, has no expiration date, and may be terminated at any time. As of June  30, 2023, 
$22.3  billion remained of this $60.0  billion share repurchase program.  
We repurchased the following shares of common stock under the share repurchase programs:  
  
(In millions)  Shares  Amount  Shares  Amount  Shares  Amount    
        
Year Ended June  30,  2023    2022    2021   
              
First Quarter   17  $ 4,600     21  $ 6,200    25  $ 5,270   
Second Quarter   20   4,600    20   6,233    27   5,750   
Third Quarter   18   4,600    26   7,800    25   5,750   
Fourth Quarter   14   4,600    28   7,800    24   6,200               
Total    69  $  18,400     95  $  28,033     101  $  22,970


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All repurchases were made using cash resources. Shares repurchased during fiscal year 2023 and the fourth and third 
quarters of fiscal year 2022 were under the share repurchase program approved on September  14, 2021. Shares 
repurchased during the second qu arter of fiscal year 2022 were under the share repurchase programs approved on both 
September  14, 2021 and September  18, 2019. All other shares repurchased were under the share repurchase program 
approved on September  18, 2019. The above table excludes sha res repurchased to settle employee tax withholding related 
to the vesting of stock awards of $3.8  billion, $4.7  billion, and $4.4  billion for fiscal years 2023, 2022, and 2021, respectively.  
  
Dividends  
Our Board of Directors declared the following divid ends:  
  
Declaration Date  Record Date  Payment  Date  Dividend  
Per Share  Amount              
Fiscal Year 2023        (In millions)  
          
September  20, 2022  November  17, 2022  December  8, 2022  $ 0.68  $ 5,066   
November  29, 2022  February  16, 2023  March  9, 2023   0.68   5,059   
March  14, 2023  May 18, 2023  June  8, 2023   0.68   5,054   
June  13, 2023  August  17, 2023  September  14, 2023   0.68   5,054   
  
Total      $  2.72  $  20,233   
          
          
Fiscal Year 2022          
          
September  14, 2021  November  18, 2021  December  9, 2021  $ 0.62  $ 4,652   
December  7, 2021  February  17, 2022  March  10, 2022   0.62   4,645


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March  14, 2022  May 19, 2022  June  9, 2022   0.62   4,632   
June  14, 2022  August  18, 2022  September  8, 2022   0.62   4,621   
  
          
Total      $    2.48   $  18,550   
          
The dividend declared on June  13, 2023 was included in other current liabilities as of June  30, 2023.


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9 STOCK PERFORMANCE  
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*  
Among Microsoft Corporation, the S&P 500 Index  
and the NASDAQ Computer Index  
  
  
 
  
  6/18 6/19 6/20 6/21 6/22 6/23   
Microsoft Corporation  $  100.00   $  138.07   $  212.34   $  285.40   $  272.82   $  365.24   
S&P 500   100.00    110.42    118.70    167.13    149.39    178.66   
NASDAQ Computer   100.00    106.10    156.93    236.08    184.53    242.82   
* $100 invested on 6/30/18 in stock or index, including reinvestment of dividends. Fiscal year ending June 30.


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10 Note About Forward -Looking Statements  
This report includes estimates, projections, statements relating to our business plans, objectives, and expected operating 
results that are “forward -looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, 
Section  27A of the Securities Act of 1933, and Section  21E of the Securities Exchange Act of 1934. Forward -looking 
statements may appear throughout this report, including the following sections: “Business” and “Management’s Discussion 
and Analysis of Financial Condit ion and Results of Operations”. These forward -looking statements generally are identified 
by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “future,” “opportunity,” “plan,”  “may,” 
“should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward -looking statements are 
based on current expectations and assumptions that are subject to risks and uncertainties that may cause actual results to 
differ materially. We describe ri sks and uncertainties that could cause actual results and events to differ materially in “Risk 
Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Quantitative and 
Qualitative Disclosures about Market Ris k” in our fiscal year 2023 Form 10 -K. Readers are cautioned not to place undue 
reliance on forward -looking statements, which speak only as of the date they are made. We undertake no obligation to 
update or revise publicly any forward -looking statements, wh ether because of new information, future events, or otherwise.  
BUSINESS  
GENERAL  
Embracing Our Future  
Microsoft is a technology company whose mission is to empower every person and every organization on the planet to 
achieve more. We strive to create local opportunity, growth, and impact in every country around the world. We are creating 
the platforms and tools, powered by artificial intelligence (“AI”), that deliver better, faster, and more effective solutions to 
support small and large business competitiveness, improve educational and health outcomes, grow public -sector efficiency, 
and empower human ingen uity. From infrastructure and data, to business applications and collaboration, we provide unique, 
differentiated value to customers.


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differentiated value to customers.  
In a world of increasing economic complexity, AI has the power to revolutionize many types of work. Microsoft is now 
innovating and expanding our portfolio with AI capabilities to help people and organizations overcome today’s challenges 
and emerge stronger. Customers are looking to unlock value from their digital spend and innovate for this next generation 
of AI, while simp lifying security and management. Those leveraging the Microsoft Cloud are best positioned to take 
advantage of technological advancements and drive innovation. Our investment in AI spans the entire company, from 
Microsoft Teams and Outlook, to Bing and Xbo x, and we are infusing generative AI capability into our consumer and 
commercial offerings to deliver copilot capability for all services across the Microsoft Cloud.  
We’re committed to making the promise of AI real – and doing it responsibly. Our work is guided by a core set of principles: 
fairness, reliability and safety, privacy and security, inclusiveness, transparency, and accountability.  
What We Offer  
Founded in 1975, we develop and support software, services, devices, and solutions that deliver new  value for customers 
and help people and businesses realize their full potential.  
We offer an array of services, including cloud -based solutions that provide customers with software, services, platforms, 
and content, and we provide solution support and co nsulting services. We also deliver relevant online advertising to a global 
audience.  
Our products include operating systems, cross -device productivity and collaboration applications, server applications, 
business solution applications, desktop and server management tools, software development tools, and video games. We 
also design and sell devices, including PCs, tablets, gaming and entertainment consoles, other intelligent devices, and 
related accessories.  
  
The Ambitions That Drive Us  
To achieve our vi sion, our research and development efforts focus on three interconnected ambitions:  
• Reinvent productivity and business processes.


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11 • Build the intelligent cloud and intelligent edge platform.  
• Create more personal computing.  
Reinvent Productivity and Business Processes  
At Microsoft, we provide technology and resources to help our customers create a secure, productive work environment. 
Our family of products plays a key role in the ways the world works, learns, and connects.  
Our growth depends on securely delivering continuous innovation and advancing our leading productivity and collaboration 
tools and services, including Office 365, Dynamics 365, and LinkedIn. Microsoft 365 brings together Office 365, Windows, 
and Enterprise  Mobility + Security to help organizations empower their employees with AI -backed tools that unlock creativity, 
increase collaboration, and fuel innovation, all the while enabling compliance coverage and data protection. Microsoft Teams 
is a comprehensive platform for work, with meetings, calls, chat, collaboration, and business process automation. Microsoft 
Viva is an employee experience platform that brings together communications, knowledge, learning, resources, and 
insights. Microsoft 365 Copilot combin es next -generation AI with business data in the Microsoft Graph and Microsoft 365 
applications.  
Together with the Microsoft Cloud, Dynamics 365, Microsoft Teams, and our AI offerings bring a new era of collaborative 
applications that optimize business fun ctions, processes, and applications to better serve customers and employees while 
creating more business value. Microsoft Power Platform is helping domain experts drive productivity gains with low -code/no -
code tools, robotic process automation, virtual age nts, and business intelligence. In a dynamic labor market, LinkedIn is 
helping professionals use the platform to connect, learn, grow, and get hired.  
Build the Intelligent Cloud and Intelligent Edge Platform  
As digital transformation and adoption of AI a ccelerates and revolutionizes more business workstreams, organizations in 
every sector across the globe can address challenges that will have a fundamental impact on their success. For enterprises, 
digital technology empowers employees, optimizes operation s, engages customers, and in some cases, changes the very 
core of products and services. We continue to invest in high performance and sustainable computing to meet the growing 
demand for fast access to Microsoft services provided by our network of cloud c omputing infrastructure and datacenters.  
Our cloud business benefits from three economies of scale: datacenters that deploy computational resources at significantly


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lower cost per unit than smaller ones; datacenters that coordinate and aggregate diverse c ustomer, geographic, and 
application demand patterns, improving the utilization of computing, storage, and network resources; and multi -tenancy 
locations that lower application maintenance labor costs.  
The Microsoft Cloud provides the best integration acr oss the technology stack while offering openness, improving time to 
value, reducing costs, and increasing agility. Being a global -scale cloud, Azure uniquely offers hybrid consistency, developer 
productivity, AI capabilities, and trusted security and compl iance. We see more emerging use cases and needs for compute 
and security at the edge and are accelerating our innovation across the spectrum of intelligent edge devices, from Internet 
of Things (“IoT”) sensors to gateway devices and edge hardware to build,  manage, and secure edge workloads.  
Our AI platform, Azure AI, is helping organizations transform, bringing intelligence and insights to the hands of their 
employees and customers to solve their most pressing challenges. Organizations large and small are deploying Azure AI 
solutions to achieve more at scale, more easily, with the proper enterprise -level and responsible AI protections.  
  
We have a long -term partnership with OpenAI, a leading AI research and deployment company. We deploy OpenAI’s 
models acr oss our consumer and enterprise products. As OpenAI’s exclusive cloud provider, Azure powers all of OpenAI’s 
workloads. We have also increased our investments in the development and deployment of specialized supercomputing 
systems to accelerate OpenAI’s re search.  
Our hybrid infrastructure offers integrated, end -to-end security, compliance, identity, and management capabilities to 
support the real -world needs and evolving regulatory requirements of commercial customers and enterprises. Our industry 
clouds b ring together capabilities across the entire Microsoft Cloud, along with industry -specific customizations. Azure Arc 
simplifies governance and management by delivering a consistent multi -cloud and on -premises management platform.  
Nuance, a leader in conve rsational AI and ambient intelligence across industries including healthcare, financial services, 
retail, and telecommunications, joined Microsoft in 2022. Microsoft and Nuance enable organizations to accelerate their 
business goals with security -focused, cloud -based solutions infused with AI.


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12 We are accelerating our development of mixed reality solutions with new Azure services and devices. Microsoft Mesh 
enables organizations to create custom, immersive experiences for the workplace to help bring remote and hybrid workers 
and teams together.  
The ability to convert data into AI drives our competitive advantage. The Microsoft Intelligent Data Platform is a leading 
cloud data platform that fully integrates databases, analytics, and governance. The platform empowers organizations to 
invest more time creating value rather than integrating and managing their data. Microsoft Fabric is an end -to-end, unified 
analytics platform that brings together all the data and analytics tools that organizations need.  
GitHub Copilot is at the forefront of AI -powered software development, giving developers a new tool to write code easier 
and faster so they can focus on more creative problem -solving. From GitHub to Visual Studio, we provide a developer tool 
chain for everyone, n o matter the technical experience, across all platforms, whether Azure, Windows, or any other cloud 
or client platform.  
Windows also plays a critical role in fueling our cloud business with Windows 365, a desktop operating system that’s also 
a cloud servi ce. From another internet -connected device, including Android or macOS devices, users can run Windows 
365, just like a virtual machine.  
Additionally, we are extending our infrastructure beyond the planet, bringing cloud computing to space. Azure Orbital i s a 
fully managed ground station as a service for fast downlinking of data.  
Create More Personal Computing  
We strive to make computing more personal, enabling users to interact with technology in more intuitive, engaging, and 
dynamic ways.  
Windows 11 of fers innovations focused on enhancing productivity, including Windows Copilot with centralized AI assistance 
and Dev Home to help developers become more productive. Windows 11 security and privacy features include operating 
system security, application sec urity, and user and identity security.  
Through our Search, News, Mapping, and Browser services, Microsoft delivers unique trust, privacy, and safety features. 
In February 2023, we launched an all new, AI -powered Microsoft Edge browser and Bing search engi ne with Bing Chat to 
deliver better search, more complete answers, and the ability to generate content. Microsoft Edge is our fast and secure


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browser that helps protect users’ data. Quick access to AI -powered tools, apps, and more within Microsoft Edge’s s idebar 
enhance browsing capabilities.  
We are committed to designing and marketing first -party devices to help drive innovation, create new device categories, 
and stimulate demand in the Windows ecosystem. The Surface family includes Surface Pro, Surface L aptop, and other 
Surface products.  
  
Microsoft continues to invest in gaming content, community, and cloud services. We have broadened our approach to how 
we think about gaming end -to-end, from the way games are created and distributed to how they are played, including 
subscription services l ike Xbox Game Pass and new devices from third -party manufacturers so players can engage across 
PC, console, and mobile. In January 2022, we announced plans to acquire Activision Blizzard, Inc., a leader in game 
development and an interactive entertainment content publisher.  
Our Future Opportunity  
We are focused on helping customers use the breadth and depth of the Microsoft Cloud to get the most value out of their 
digital spend while leading the new AI wave across our solution areas. We continue to develo p complete, intelligent solutions 
for our customers that empower people to be productive and collaborate, while safeguarding businesses and simplifying IT 
management. Our goal is to lead the industry in several distinct areas of technology over the long te rm, which we expect 
will translate to sustained growth. We are investing significant resources in:  
• Transforming the workplace to deliver new modern, modular business applications, drive deeper insights, and 
improve how people communicate, collaborate, l earn, work, and interact with one another.  
• Building and running cloud -based services in ways that utilize ubiquitous computing to unleash new 
experiences and opportunities for businesses and individuals.


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13 • Applying AI and ambient intelligence to drive insights, revolutionize many types of work, and provide substantive 
productivity gains using natural methods of communication.  
• Tackling security from all angles with our integrated, end -to-end solutions spanning security, compliance, 
identity, and manag ement, across all clouds and platforms.  
• Inventing new gaming experiences that bring people together around their shared love for games on any 
devices and pushing the boundaries of innovation with console and PC gaming.  
• Using Windows to fuel our cloud  business, grow our share of the PC market, and drive increased engagement 
with our services like Microsoft 365 Consumer, Microsoft Teams, Microsoft Edge, Bing, Xbox Game Pass, and 
more.  
Our future growth depends on our ability to transcend current produc t category definitions, business models, and sales 
motions.  
Corporate Social Responsibility  
Commitment to Sustainability  
Microsoft’s approach to addressing climate change starts with the sustainability of our own business. In 2020, we committed 
to being a carbon negative, water positive, and zero waste company by 2030.  
In May 2023, we released our Environmental Sustainabili ty Report which looked back at our progress during fiscal year 
2022. We continued to make progress on our goals, with our overall emissions declining by 0.5  percent. While our Scope 1 
and Scope 2 emissions continued to decline, Scope 3 emissions increased by 0.5  percent. Scope 3 represented 96  percent 
of our total emissions, resulting primarily from the operations of our suppliers and the use of our products across our 
customers.  
A few examples of our continued progress include:  
• Signed new power purchas e agreements, bringing our total portfolio of carbon -free energy to over 13.5 
gigawatts.  
• Contracted for water replenishment projects that are estimated to provide more than 15.6  million cubic meters 
in volumetric water benefit over the lifetime of these  projects.  
  
• Diverted 12,159 metric tons of solid waste from landfills and incinerators across our direct operational footprint.  
• Protected 12,270 acres of land in Belize – more than the 11,206 acres of land that we use around the world.


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Microsoft has a role to play in developing and advancing new climate solutions, but we recognize that no solution can be 
offered by any single company, organization, or government. Our approach helps to support the sustainability needs of our 
customers and  the global community. Our Microsoft Cloud for Sustainability, an environmental sustainability management 
platform that includes Microsoft Sustainability Manager, enables organizations to record, report, and reduce their Scope 1, 
2, and 3 emissions. These digital tools can interoperate with business systems and unify data intelligence for organizations.  
Addressing Racial Injustice and Inequity  
We are committed to addressing racial injustice and inequity in the United States for Black and African American 
communities and helping improve lived experiences at Microsoft, in employees’ communities, and beyond. Our Racial Equity 
Initiative focuses on three multi -year pillars, each containing actions and progress we expect to make or exceed by 2025.  
• Strengthen ing our communities: using data, technology, and partnerships to help improve the lives of Black 
and African American people in the United States, including our employees and their communities.  
• Engaging our ecosystem: using our balance sheet and relatio nships with suppliers and partners to foster 
societal change and create new opportunities.  
• Increasing representation and strengthening inclusion: building on our momentum by adding a $150  million 
investment to strengthen inclusion and double the number of Black, African American, Hispanic, and Latinx 
leaders in the United States by 2025.


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14 In fiscal year 2023, we collaborated with partners and worked within neighborhoods and communities to launch and scale 
a number of projects and programs, including:  
• Working with 103 unique organizations in 165 cities and counties on our Justice Reform Initiative to empower 
communities and advance racial equity and fairness in the justice system.  
• Increasing access to affordable broadband, devices, and digital litera cy training across 14 geographies, 
including 11 cities and three states in the Black Rural south.  
• Growing our Nonprofit Tech Acceleration for Black and African American Communities program, which uses 
data, technology, and partnerships to help more than  2,000 local organizations to modernize and streamline 
operations.  
• Expanding our Technology Education and Learning Support (“TEALS”) program to reach nearly 400 high 
schools in 21 communities to increase computer science opportunities for Black and African American students.  
We exceeded our 2020 goal to double the percen tage of our transaction volumes with Black - and African American -owned 
financial institutions by 2023. We are also increasing investment activity with Black - and African American -owned asset 
managers, which now represent 45  percent of our external manager group, enabling increased funds into local communities. 
We also met our goal of creating a $100  million program focused on mission -driven banks. We enriched our supplier 
pipeline, achieving our goal to spend $500  million with double the number of Black - and African American -owned suppliers. 
We also increased the number of identified partners in the Black Partner Growth Initiative by more than 250  percent, 
surpassing our initial goal.  
We have made meaningful progress on representation and inclusion at Micro soft. As of June 2023, we are 93  percent of 
the way to our 2025 commitment to double the number of Black and African American people managers in the U.S. (below 
director level), and 107  percent of the way for Black and African American directors (people ma nagers and individual 
contributors). We are 28  percent of the way for Hispanic and Latinx people managers (below director level) and 74  percent 
of the way for Hispanic and Latinx directors.  
  
Investing in Digital Skills


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Investing in Digital Skills  
After helping over 80  million jobs eekers around the world access digital skilling resources, we introduced a new Skills for 
Jobs initiative to support a more skills -based labor market, with greater flexibility and accessible learning paths to develop 
the right skills needed for the most in -demand jobs. Our Skills for Jobs initiative brings together learning resources, 
certification opportunities, and job -seeker tools from LinkedIn, GitHub, and Microsoft Learn, and is built on data insights 
drawn from LinkedIn’s Economic Graph.  
We also laun ched a national campaign to help skill and recruit 250,000 people into the cybersecurity workforce by 2025, 
representing half of the country’s workforce shortage. To that end, we are making curriculum available free of charge to all 
of the nation’s higher education institutions, providing training for new and existing faculty, and providing scholarships and 
supplemental resources to 25,000 students. We have expanded the cyber skills initiative to 27 additional countries that 
show elevated cyberthreat risks coupled with significant gaps in their cybersecurity workforces, partnering with nonprofits 
and other educational institutions to train the next generation of cybersecurity workers.  
Generative AI is creating unparalleled opportunities to empower workers g lobally, but only if everyone has the skills to use 
it. To address this, in June 2023 we launched a new AI Skills Initiative to help everyone learn how to harness the power of 
AI. This includes a new LinkedIn learning pathway offering new coursework on lea rning the foundations of generative AI. 
We also launched a new global grant challenge to uncover new ways of training workers on generative AI and are providing 
greater access to digital learning events and resources for everyone to improve their AI fluenc y.  
HUMAN CAPITAL RESOURCES  
Overview  
Microsoft aims to recruit, develop, and retain world -changing talent from a diversity of backgrounds. To foster their and our 
success, we seek to create an environment where people can thrive and do their best work. W e strive to maximize the 
potential of our human capital resources by creating a respectful, rewarding, and inclusive work environment that enables 
our global employees to create products and services that further our mission.


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our global employees to create products and services that further our mission.  
As of June  30, 2023, we emplo yed approximately 221,000 people on a full -time basis, 120,000 in the U.S. and 101,000 
internationally. Of the total employed people, 89,000 were in operations, including manufacturing, distribution, product


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15 support, and consulting services; 72,000 were in  product research and development; 45,000 were in sales and marketing; 
and 15,000 were in general and administration. Certain employees are subject to collective bargaining agreements.  
Our Culture  
Microsoft’s culture is grounded in growth mindset. This means everyone is on a continuous journey to learn and grow, 
operating as one company instead of multiple siloed businesses.  
Our employee listening systems enable us to gather feedback directly from our workforce to inform our programs and 
employee needs globally. Employees participate in our Employee Signals surveys, which cover a variety of topics such as 
thriving, inclusion, team culture, wellbeing, and learning and development. We also collect Dai ly Signals employee survey 
responses, giving us real -time insights into ways we can support our employees. In addition to Employee Signals and Daily 
Signals surveys, we gain insights through onboarding, exit surveys, internal Viva Engage channels, employee  Q&A 
sessions, and our internal AskHR Service support.  
Diversity and inclusion are core to our business model, and we hold ourselves accountable for driving global systemic 
change in our workforce and creating an inclusive work environment. We support multiple highly active Employee Resource 
Groups for women, families, racial and ethnic minorities, military, people with disabilities, and employees who identify as 
LGBTQIA+, where employees can go for support, networking, and community -building. As described in our 2022 Proxy 
Statement, annual performance and com pensation reviews of our senior leadership team include an evaluation of their 
contributions to employee culture and diversity. To ensure accountability over time, we publicly disclose our progress on a 
multitude of workforce metrics including:  
• Detailed  breakdowns of gender, racial, and ethnic minority representation in our employee population, with data 
by job types, levels, and segments of our business.  
• Our EEO -1 report (equal employment opportunity).  
• Disability representation.  
• Pay equity (see  details below).  
Total Rewards and Pay Equity  
We develop dynamic, sustainable, market -driven, and strategic programs with the goal of providing a highly differentiated 
portfolio to attract, reward, and retain top talent and enable our employees to thrive . These programs reinforce our culture


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and values such as collaboration and growth mindset. Managers evaluate and recommend rewards based on, for example, 
how well we leverage the work of others and contribute to the success of our colleagues. We monitor p ay equity and career 
progress across multiple dimensions. Our total compensation opportunity is highly differentiated and is market competitive.  
In order to manage our costs in a dynamic, competitive environment, in fiscal year 2023 we announced that base  salaries 
of salaried employees would remain at fiscal year 2022 levels. Pay increases continue to be available for rewards -eligible 
hourly and equivalent employees. We will continue our practice of investing in stock for all rewards -eligible employees, 
salaried and hourly, and investing in bonuses for all eligible employees.  
Since 2016, we have reported on pay equity as part of our annual Diversity and Inclusion report. In 2022, we reported that 
all racial and ethnic minority employees in the U.S. combine d earn $1.008 for every $1.000 earned by their white 
counterparts, that women in the U.S. earn $1.007 for every $1.000 earned by their counterparts who are men, and that 
women outside the U.S. earn $1.002 for every $1.000 earned by their counterparts outsi de the U.S. who are men. In this 
year’s report, we again expanded our pay equity data beyond the U.S. to report on 61 additional countries (up from 12 last 
year), representing 99.8% of our global Microsoft workforce.  
In addition, we began reporting on una djusted median pay in our annual report, comparing total pay amounts for all 
employees regardless of factors such as job title, level, or tenure. For employees who are eligible for rewards, the analysis  
showed that total pay for women is 89.6% of total pay  for men in the U.S. and 86.2% outside of the U.S., and total pay for 
racial and ethnic minorities in the U.S. is 89.9% of total pay for white employees. As we continue to increase representation  
for women and racial and ethnic minorities at more senior le vels, and continue to ensure pay equity for all, the gap between 
the medians will reduce.


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the medians will reduce.  
Our intended result is a global performance and development approach that fosters our culture, and competitive 
compensation that ensures equitable pay by role while supporting pay for performance.


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16 Wellbeing and Hybrid Work  
Microsoft is committed to supporting our employees’ wellbeing while they are at work and in their personal lives. We have 
invested significantly in wellbeing, and offer a differentiated benefits p ackage which includes many physical, emotional, and 
financial wellness programs including counseling through the Microsoft CARES Employee Assistance Program, mental 
wellbeing support, flexible fitness benefits, disability accommodations, savings and invest ment tools, adoption assistance, 
and back -up care for children and elders. Finally, our Occupational Health and Safety program helps ensure employees 
can stay safe while they are working.  
We introduced Hybrid Workplace Flexibility Guidance to better suppo rt leaders, managers, and employees in hybrid work 
scenarios. Our ongoing survey data shows that 93% of employees value the flexibility related to work location, work site, 
and work hours, and 78% are satisfied with the quality of connection with co -worker s. There is no one -size-fits-all approach 
to flexible work at Microsoft. As a company, we will continue to leverage data and research to inform decision making, 
balancing the needs of business, team, and individual.  
Learning and Development  
We offer a ra nge of learning opportunities, including personalized opportunities on our internal and external learning portals, 
in-classroom learning, required learning on compliance and company culture, on -the-job advancement opportunities, and 
manager coaching. We al so provide customized manager learning, new employee orientation, and tools for operating in a 
flexible hybrid work environment.  
All Microsoft employees globally access our single Viva Learning tool for both required and personal choice learning. This 
includes courses focused on our core principles and compliance matters, such as Business Conduct, Privacy, Security 
Foundations, and Harassment Prevention. We also deliver skills training for employees based on their profession and role 
discipline.  
We have o ver 27,000 people managers, all of whom must complete between 20 -33 hours of compulsory training on 
leadership and management and are assigned additional targeted training on an ongoing basis related to people 
management, compliance, and culture.  
OPERATING SEGMENTS  
We operate our business and report our financial performance using three segments: Productivity and Business Processes, 
Intelligent Cloud, and More Personal Computing. Our segments provide management with a comprehensive financial view


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of our key businesses. The segments enable the alignment of strategies and objectives across the development, sales, 
marketing, and services organizations, and they provide a framework for timely and rational allocation of resources within 
businesses.  
Additional information on our operating segments and geographic and product information is contained in Note 19 – 
Segment Information and Geographic Data of the Notes to Financial Statements.  
Our reportable segments are described below.  
Productivity and Bus iness Processes  
Our Productivity and Business Processes segment consists of products and services in our portfolio of productivity, 
communication, and information services, spanning a variety of devices and platforms. This segment primarily comprises:  
• Office Commercial (Office 365 subscriptions, the Office 365 portion of Microsoft 365 Commercial subscriptions, 
and Office licensed on -premises), comprising Office, Exchange, SharePoint, Microsoft Teams, Office 365 
Security and Compliance, Microsoft Viva, a nd Microsoft 365 Copilot.  
• Office Consumer, including Microsoft 365 Consumer subscriptions, Office licensed on -premises, and other 
Office services.  
• LinkedIn, including Talent Solutions, Marketing Solutions, Premium Subscriptions, and Sales Solutions.


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17 • Dynamics business solutions, including Dynamics 365, comprising a set of intelligent, cloud -based applications 
across ERP, CRM (including Customer Insights), Power Apps, and Power Automate; and on -premises ERP 
and CRM applications.  
Office Commercial  
Office Commercial is designed to increase personal, team, and organizational productivity through a range of products and 
services. Growth depends on our ability to reach new users in new markets such as frontline workers, small and medium 
businesses, and g rowth markets, as well as add value to our core product and service offerings to span productivity 
categories such as communication, collaboration, analytics, security, and compliance. Office Commercial revenue is mainly 
affected by a combination of contin ued installed base growth and average revenue per user expansion, as well as the 
continued shift from Office licensed on -premises to Office 365.  
Office Consumer  
Office Consumer is designed to increase personal productivity and creativity through a range of products and services. 
Growth depends on our ability to reach new users, add value to our core product set, and continue to expand our product 
and service offerings into new markets. Office Consumer revenue is mainly affected by the percentage of custom ers that 
buy Office with their new devices and the continued shift from Office licensed on -premises to Microsoft 365 Consumer 
subscriptions. Office Consumer Services revenue is mainly affected by the demand for communication and storage through 
Skype, Outl ook.com, and OneDrive, which is largely driven by subscriptions, advertising, and the sale of minutes.  
LinkedIn  
LinkedIn connects the world’s professionals to make them more productive and successful and transforms the way 
companies hire, market, sell, and learn. Our vision is to create economic opportunity for every member of the global 
workforce through the ongoin g development of the world’s first Economic Graph, a digital representation of the global 
economy. In addition to LinkedIn’s free services, LinkedIn offers monetized solutions: Talent Solutions, Marketing Solutions,  
Premium Subscriptions, and Sales Solutio ns. Talent Solutions provide insights for workforce planning and tools to hire, 
nurture, and develop talent. Talent Solutions also includes Learning Solutions, which help businesses close critical skills 
gaps in times where companies are having to do more with existing talent. Marketing Solutions help companies reach,


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engage, and convert their audiences at scale. Premium Subscriptions enable professionals to manage their professional 
identity, grow their network, find jobs, and connect with talent through a dditional services like premium search. Sales 
Solutions help companies strengthen customer relationships, empower teams with digital selling tools, and acquire new 
opportunities. LinkedIn has over 950  million members and has offices around the globe. Growt h will depend on our ability 
to increase the number of LinkedIn members and our ability to continue offering services that provide value for our members 
and increase their engagement. LinkedIn revenue is mainly affected by demand from enterprises and profe ssional 
organizations for subscriptions to Talent Solutions, Sales Solutions, and Premium Subscriptions offerings, as well as 
member engagement and the quality of the sponsored content delivered to those members to drive Marketing Solutions.  
Dynamics  
Dynamics provides cloud -based and on -premises business solutions for financial management, enterprise resource 
planning (“ERP”), customer relationship management (“CRM”), supply chain management, and other application 
development platforms for small and mediu m businesses, large organizations, and divisions of global enterprises. Dynamics 
revenue is driven by the number of users licensed and applications consumed, expansion of average revenue per user, and 
the continued shift to Dynamics 365, a unified set of c loud-based intelligent business applications, including Power Apps 
and Power Automate.  
Competition  
Competitors to Office include software and global application vendors, such as Apple, Cisco Systems, Meta, Google, Okta, 
Proofpoint, Slack, Symantec, Zoom, and numerous web -based and mobile application competitors as well as local 
application developers. A pple distributes versions of its pre -installed application software, such as email and calendar 
products, through its PCs, tablets, and phones. Cisco Systems is using its position in enterprise communications equipment 
to grow its unified communications bu siness. Meta offers communication tools to enable productivity and engagement within 
organizations. Google provides a hosted messaging and productivity suite. Slack provides teamwork and collaboration 
software. Zoom offers videoconferencing and cloud phone  solutions. Okta, Proofpoint, and Symantec provide security


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18 solutions across email security, information protection, identity, and governance. Web -based offerings competing with 
individual applications have also positioned themselves as alternatives to our  products and services. We compete by 
providing powerful, flexible, secure, integrated industry -specific, and easy -to-use productivity and collaboration tools and 
services that create comprehensive solutions and work well with technologies our customers al ready have both on -premises 
or in the cloud.  
LinkedIn faces competition from online professional networks, recruiting companies, talent management companies, and 
larger companies that are focusing on talent management and human resource services; job boar ds; traditional recruiting 
firms; and companies that provide learning and development products and services. Marketing Solutions competes with 
online and offline outlets that generate revenue from advertisers and marketers, and Sales Solutions competes wit h online 
and offline outlets for companies with lead generation and customer intelligence and insights.  
Dynamics competes with cloud -based and on -premises business solution providers such as Oracle, Salesforce, and SAP.  
Intelligent Cloud  
Our Intelligent  Cloud segment consists of our public, private, and hybrid server products and cloud services that can power 
modern business and developers. This segment primarily comprises:  
• Server products and cloud services, including Azure and other cloud services; SQL Server, Windows Server, 
Visual Studio, System Center, and related Client Access Licenses (“CALs”); and Nuance and GitHub.  
• Enterprise Services, including Enterprise Support Services, Industry Solutions (formerly Microsoft Consulting 
Services), and Nu ance professional services.  
Server Products and Cloud Services  
Azure is a comprehensive set of cloud services that offer developers, IT professionals, and enterprises freedom to build, 
deploy, and manage applications on any platform or device. Customers can use Azure through our global network of 
datacenters for computing, networking, storage, mobile and web application services, AI, IoT, cognitive services, and 
machine learning. Azure enables customers to devote more resources to development and use of a pplications that benefit 
their organizations, rather than managing on -premises hardware and software. Azure revenue is mainly affected by 
infrastructure -as-a-service and platform -as-a-service consumption -based services, and per user -based services such as 
Enterprise Mobility + Security.


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Enterprise Mobility + Security.  
Azure AI offerings provide a competitive advantage as companies seek ways to optimize and scale their business with 
machine learning. Azure’s purpose -built, AI -optimized infrastructure allows advanced models, including GPT -4 services 
designed for developers and data scientists, to do more with less. Customers can integrate large language models and 
develop the next generation of AI apps and services.  
Our server products are designed to make IT professionals, developers, and  their systems more productive and efficient. 
Server software is integrated server infrastructure and middleware designed to support software applications built on the 
Windows Server operating system. This includes the server platform, database, business i ntelligence, storage, 
management and operations, virtualization, service -oriented architecture platform, security, and identity software. We also 
license standalone and software development lifecycle tools for software architects, developers, testers, and project 
managers. Server products revenue is mainly affected by purchases through volume licensing programs, licenses sold to 
original equipment manufacturers (“OEM”), and retail packaged products. CALs provide access rights to certain server 
products, inc luding SQL Server and Windows Server, and revenue is reported along with the associated server product.  
Nuance and GitHub include both cloud and on -premises offerings. Nuance provides healthcare and enterprise AI solutions. 
GitHub provides a collaboration  platform and code hosting service for developers.  
  
Enterprise Services  
Enterprise Services, including Enterprise Support Services, Industry Solutions, and Nuance Professional Services, assist 
customers in developing, deploying, and managing Microsoft s erver solutions, Microsoft desktop solutions, and Nuance 
conversational AI and ambient intelligent solutions, along with providing training and certification to developers and IT 
professionals on various Microsoft products.


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19 Competition  
Azure faces divers e competition from companies such as Amazon, Google, IBM, Oracle, VMware, and open source 
offerings. Azure’s competitive advantage includes enabling a hybrid cloud, allowing deployment of existing datacenters with 
our public cloud into a single, cohesive i nfrastructure, and the ability to run at a scale that meets the needs of businesses 
of all sizes and complexities. Our AI offerings compete with AI products from hyperscalers such as Amazon Bedrock, 
Amazon CodeWhisperer, and Google AI, as well as products from other emerging competitors, many of which are also 
current or potential partners, including Meta’s LLaMA2 and other open source solutions. Our Enterprise Mobility + Security 
offerings also compete with products from a range of competitors including id entity vendors, security solution vendors, and 
numerous other security point solution vendors. We believe our cloud’s global scale, coupled with our broad portfolio of 
identity and security solutions, allows us to effectively solve complex cybersecurity ch allenges for our customers and 
differentiates us from the competition.  
Our server products face competition from a wide variety of server operating systems and applications offered by companies 
with a range of market approaches. Vertically integrated comp uter manufacturers such as Hewlett -Packard, IBM, and Oracle 
offer their own versions of the Unix operating system preinstalled on server hardware. Nearly all computer manufacturers 
offer server hardware for the Linux operating system, and many contribute t o Linux operating system development. The 
competitive position of Linux has also benefited from the large number of compatible applications now produced by many 
commercial and non -commercial software developers. A number of companies, such as Red Hat, supp ly versions of Linux.  
We compete to provide enterprise -wide computing solutions and point solutions with numerous commercial software 
vendors that offer solutions and middleware technology platforms, software applications for connectivity (both Internet a nd 
intranet), security, hosting, database, and e -business servers. IBM and Oracle lead a group of companies focused on the 
Java Platform Enterprise Edition that competes with our enterprise -wide computing solutions. Commercial competitors for 
our server ap plications for PC -based distributed client -server environments include CA Technologies, IBM, and Oracle. Our 
web application platform software competes with open source software such as Apache, Linux, MySQL, and PHP. In


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middleware, we compete against Java vendors.  
Our database, business intelligence, and data warehousing solutions offerings compete with products from IBM, Oracle, 
SAP, Snowflake, and other companies. Our system management solutions compete with server management and server 
virtualization pl atform providers, such as BMC, CA Technologies, Hewlett -Packard, IBM, and VMware. Our products for 
software developers compete against offerings from Adobe, IBM, Oracle, and other companies, and also against open 
source projects, including Eclipse (sponsor ed by CA Technologies, IBM, Oracle, and SAP), PHP, and Ruby on Rails.  
We believe our server products provide customers with advantages in performance, total costs of ownership, and 
productivity by delivering superior applications, development tools, compatibility with a broad base of hardware and software  
applications, secur ity, and manageability.  
Our Enterprise Services business competes with a wide range of companies that provide strategy and business planning, 
application development, and infrastructure services, including multinational consulting firms and small niche bu sinesses 
focused on specific technologies.  
  
More Personal Computing  
Our More Personal Computing segment consists of products and services that put customers at the center of the experience 
with our technology. This segment primarily comprises:  
• Window s, including Windows OEM licensing (“Windows OEM”) and other non -volume licensing of the Windows 
operating system; Windows Commercial, comprising volume licensing of the Windows operating system, 
Windows cloud services, and other Windows commercial offerin gs; patent licensing; and Windows IoT.  
• Devices, including Surface, HoloLens, and PC accessories.  
• Gaming, including Xbox hardware and Xbox content and services, comprising first - and third -party content 
(including games and in -game content), Xbox Game Pass and other subscriptions, Xbox Cloud Gaming, 
advertising, third -party disc royalties, and other cl oud services.  
• Search and news advertising, comprising Bing (including Bing Chat), Microsoft News, Microsoft Edge, and 
third-party affiliates.


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20 Windows  
The Windows operating system is designed to deliver a more personal computing experience for users by  enabling 
consistency of experience, applications, and information across their devices. Windows OEM revenue is impacted 
significantly by the number of Windows operating system licenses purchased by OEMs, which they pre -install on the devices 
they sell. In  addition to computing device market volume, Windows OEM revenue is impacted by:  
• The mix of computing devices based on form factor and screen size.  
• Differences in device market demand between developed markets and growth markets.  
• Attachment of Win dows to devices shipped.  
• Customer mix between consumer, small and medium businesses, and large enterprises.  
• Changes in inventory levels in the OEM channel.  
• Pricing changes and promotions, pricing variation that occurs when the mix of devices manuf actured shifts from 
local and regional system builders to large multinational OEMs, and different pricing of Windows versions 
licensed.  
• Constraints in the supply chain of device components.  
• Piracy.  
Windows Commercial revenue, which includes volume licensing of the Windows operating system and Windows cloud 
services such as Microsoft Defender for Endpoint, is affected mainly by the demand from commercial customers for volume 
licensing and Software Ass urance (“SA”), as well as advanced security offerings. Windows Commercial revenue often 
reflects the number of information workers in a licensed enterprise and is relatively independent of the number of PCs sold 
in a given year.  
Patent licensing includes our programs to license patents we own for use across a broad array of technology areas, including 
mobile devices and cloud offerings.  
Windows IoT extends the power of Windows and the cloud to intelligent systems by delivering specialized operating 
system s, tools, and services for use in embedded devices.  
Devices  
We design and sell devices, including Surface, HoloLens, and PC accessories. Our devices are designed to enable people 
and organizations to connect to the people and content that matter most usi ng Windows and integrated Microsoft products 
and services. Surface is designed to help organizations, students, and consumers be more productive. Growth in Devices 
is dependent on total PC shipments, the ability to attract new customers, our product roadma p, and expanding into new 
categories.  
Gaming


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categories.  
Gaming  
Our gaming platform is designed to provide a variety of entertainment through a unique combination of content, community, 
and cloud services. Our exclusive game content is created through Xbox Game Studios, a collection of first -party studios 
creating iconic and differentiated gaming experiences. We continue to invest in new gaming studios and content to expand 
our intellectual property roadmap and leverage new content creators. These unique gaming experiences are the cornerstone 
of Xbox Game Pass, a subscription service and gaming community with access to a curated library of over 400 first - and 
third-party console and PC titles.  
The gamer remains at the heart of the Xbox ecosystem. We are identifying new oppo rtunities to attract gamers across a 
variety of different end points through our first - and third -party content and business diversification across subscriptions, 
ads, and digital stores. We’ve seen new devices from third -party manufacturers along with key  PC and mobile end points 
that help us empower gamers to play in a way that is most convenient to them. We are focused on growing the platform 
and expanding to new ecosystems to engage as many gamers as possible.   
Xbox enables people to connect and share o nline gaming experiences that are accessible on Xbox consoles, Windows -
enabled devices, and other devices.  Xbox is designed to benefit users by providing access to a network of certified 
applications and services and to benefit our developer and partner ec osystems by providing access to a large customer


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21 base. Xbox revenue is mainly affected by subscriptions and sales of first - and third -party content, as well as advertising. 
Growth of our Gaming business is determined by the overall active user base through  Xbox enabled content, availability of 
games, providing exclusive game content that gamers seek, the computational power and reliability of the devices used to 
access our content and services, and the ability to create new experiences through first -party c ontent creators.  
Search and News Advertising  
Our Search and news advertising business is designed to deliver relevant search, native, and display advertising to a global 
audience. Our Microsoft Edge browser and Bing Chat capabilities are key tools to ena ble user acquisition and engagement, 
while our technology platform enables accelerated delivery of digital advertising solutions. In addition to first -party tools, we 
have several partnerships with companies, such as Yahoo, through which we provide and mon etize search offerings. 
Growth depends on our ability to attract new users, understand intent, and match intent with relevant content on advertising 
offerings.  
Competition  
Windows faces competition from various software products and from alternative plat forms and devices, mainly from Apple 
and Google. We believe Windows competes effectively by giving customers choice, value, flexibility, security, an easy -to-
use interface, and compatibility with a broad range of hardware and software applications, includi ng those that enable 
productivity.  
Devices face competition from various computer, tablet, and hardware manufacturers who offer a unique combination of 
high-quality industrial design and innovative technologies across various price points. These manufactu rers, many of which 
are also current or potential partners and customers, include Apple and our Windows OEMs.  
Xbox and our cloud gaming services face competition from various online gaming ecosystems and game streaming 
services, including those operated b y Amazon, Apple, Meta, and Tencent. We also compete with other providers of 
entertainment services such as video streaming platforms. Our gaming platform competes with console platforms from 
Nintendo and Sony, both of which have a large, established base o f customers.  We believe our gaming platform is effectively 
positioned against, and uniquely differentiated from, competitive products and services based on significant innovation in 
hardware architecture, user interface, developer tools, online gaming and entertainment services, and continued strong


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exclusive content from our own first -party game franchises as well as other digital content offerings.  
Our Search and news advertising business competes with Google and a wide array of websites, social platform s like Meta, 
and portals that provide content and online offerings to end users.  
OPERATIONS  
We have regional operations service centers that support our operations, including customer contract and order processing, 
billing, credit and collections, inform ation processing, and vendor management and logistics. The center in Ireland supports 
the African, Asia -Pacific, European, and Middle East regions; and the centers in Arlington, Virginia, Atlanta, Georgia, 
Charlotte, North Carolina, Fargo, North Dakota, Fo rt Lauderdale, Florida, Redmond, Washington, Reno, Nevada, and 
Puerto Rico support the American regions.  
In addition to our operations centers, we also operate datacenters throughout each of these regions. We continue to identify 
and evaluate opportunitie s to expand our datacenter locations and increase our server capacity to meet the evolving needs 
of our customers, particularly given the growing demand for AI services. Our datacenters depend on the availability of 
permitted and buildable land, predictabl e energy, networking supplies, and servers, including graphics processing units 
(“GPUs”) and other components.  
Our devices are primarily manufactured by third -party contract manufacturers. For the majority of our products, we have the 
ability to use other  manufacturers if a current vendor becomes unavailable or unable to meet our requirements. However, 
some of our products contain certain components for which there are very few qualified suppliers. Extended disruptions at 
these suppliers could impact our a bility to manufacture devices on time to meet consumer demand.


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22 RESEARCH AND DEVELOPMENT  
Product and Service Development, and Intellectual Property  
We develop most of our products and services internally through the following engineering groups.  
• Cloud  and AI  – focuses on making IT professionals, developers, partners, independent software vendors, and 
their systems more productive and efficient through development of Azure AI platform and cloud infrastructure, 
server, database, CRM, ERP, software develo pment tools and services (including GitHub), AI cognitive 
services, and other business process applications and services for enterprises.  
• Strategic Missions and Technologies  – focuses on incubating technical products and support solutions with 
transform ative potential for the future of cloud computing and continued company growth across quantum 
computing, Azure Space  & Missions Engineering, telecommunications, and Microsoft Federal Sales and 
Delivery.  
• Experiences and Devices  – focuses on delivering hi gh value end -user experiences across our products, 
services, and devices, including Microsoft 365, Windows, Microsoft Teams, Search (including Microsoft Edge 
and Bing Chat) and other advertising -based services, and the Surface line of devices.  
• Microsoft  Security  – focuses on delivering a comprehensive portfolio of services that protect our customers’ 
digital infrastructure through cloud platform and application security, data protection and governance, identity 
and network access, and device management.    
• Technology and Research  – focuses on fundamental research, product and business incubations, and forward -
looking AI innovations that span infrastructure, services, and applications.  
• LinkedIn  – focuses on our services that transform the way professio nals grow their network and find jobs and 
the way businesses hire, market, sell, and learn.  
  
• Gaming  – focuses on developing hardware, content, and services across a large range of platforms to help 
grow our user base through game experiences and social  interaction.  
Internal development allows us to maintain competitive advantages that come from product differentiation and closer 
technical control over our products and services. It also gives us the freedom to decide which modifications and 
enhancements  are most important and when they should be implemented. We strive to obtain information as early as 
possible about changing usage patterns and hardware advances that may affect software and hardware design. Before 
releasing new software platforms, and as we make significant modifications to existing platforms, we provide application


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vendors with a range of resources and guidelines for development, training, and testing. Generally, we also create product 
documentation internally.  
We protect our intellectua l property investments in a variety of ways. We work actively in the U.S. and internationally to 
ensure the enforcement of copyright, trademark, trade secret, and other protections that apply to our software and hardware 
products, services, business plans,  and branding. We are a leader among technology companies in pursuing patents and 
currently have a portfolio of over 70,000 U.S. and international patents issued and over 19,000 pending worldwide. While 
we employ much of our internally -developed intellectu al property in our products and services, we also engage in outbound 
licensing of specific patented technologies that are incorporated into licensees’ products. From time to time, we enter into 
broader cross -license agreements with other technology compani es covering entire groups of patents. We may also 
purchase or license technology that we incorporate into our products and services. At times, we make select intellectual 
property broadly available at no or low cost to achieve a strategic objective, such a s promoting industry standards, 
advancing interoperability, supporting societal and/or environmental efforts, or attracting and enabling our external 
development community. Our increasing engagement with open source software will also cause us to license o ur intellectual 
property rights broadly in certain situations.  
While it may be necessary in the future to seek or renew licenses relating to various aspects of our products and services, 
we believe, based upon past experience and industry practice, such l icenses generally can be obtained on commercially 
reasonable terms. We believe our continuing research and product development are not materially dependent on any single 
license or other agreement with a third party relating to the development of our produ cts.  
Investing in the Future  
Our success is based on our ability to create new and compelling products, services, and experiences for our users, to 
initiate and embrace disruptive technology trends, to enter new geographic and product markets, and to dri ve broad adoption


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23 of our products and services. We invest in a range of emerging technology trends and breakthroughs that we believe offer 
significant opportunities to deliver value to our customers and growth for the company. Based on our assessment of ke y 
technology trends, we maintain our long -term commitment to research and development across a wide spectrum of 
technologies, tools, and platforms spanning digital work and life experiences, cloud computing, AI, devices, and operating 
systems.  
While our m ain product research and development facilities are located in Redmond, Washington, we also operate research 
and development facilities in other parts of the U.S. and around the world. This global approach helps us remain competitive 
in local markets and e nables us to continue to attract top talent from across the world.  
We plan to continue to make significant investments in a broad range of product research and development activities, and 
as appropriate we will coordinate our research and development acro ss operating segments and leverage the results across 
the company.  
In addition to our main research and development operations, we also operate Microsoft Research. Microsoft Research is 
one of the world’s largest corporate research organizations, often wor king in close collaboration with top universities around 
the world, and is focused on advancing the state -of-the-art in computer science and a broad range of other disciplines. Our 
investment in fundamental research provides us a unique perspective on futu re trends and contributes to our innovation.  
  
DISTRIBUTION, SALES, AND MARKETING  
We market and distribute our products and services through the following channels: OEMs, direct, and distributors and 
resellers. Our sales organization performs a variety of functions, including working directly with commercial enterprises and  
public -secto r organizations worldwide to identify and meet their technology and digital transformation requirements; 
managing OEM relationships; and supporting system integrators, independent software vendors, and other partners who 
engage directly with our customers to perform sales, consulting, and fulfillment functions for our products and services.  
OEMs  
We distribute our products and services through OEMs that pre -install our software on new devices and servers they sell. 
The largest component of the OEM business  is the Windows operating system pre -installed on devices. OEMs also sell 
devices pre -installed with other Microsoft products and services, including applications such as Office and the capability to


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subscribe to Office 365.  
There are two broad categories  of OEMs.  The largest category of OEMs are direct OEMs as our relationship with them is 
managed through a direct agreement between Microsoft and the OEM. We have distribution agreements covering one or 
more of our products with virtually all the multinatio nal OEMs, including Dell, Hewlett -Packard, Lenovo, and with many 
regional and local OEMs.  The second broad category of OEMs are system builders consisting of lower -volume PC 
manufacturers, which source Microsoft software for pre -installation and local redi stribution primarily through the Microsoft 
distributor channel rather than through a direct agreement or relationship with Microsoft.  
Direct  
Many organizations that license our products and services transact directly with us through Enterprise Agreements and 
Enterprise Services contracts, with sales support from system integrators, independent software vendors, web agencies, 
and partners that a dvise organizations on licensing our products and services (“Enterprise Agreement Software Advisors” 
or “ESA”). Microsoft offers direct sales programs targeted to reach small, medium, and corporate customers, in addition to 
those offered through the resell er channel. A large network of partner advisors support many of these sales.  
We also sell commercial and consumer products and services directly to customers, such as cloud services, search, and 
gaming, through our digital marketplaces and online stores. Additionally, our Microsoft Experience Centers are designed to 
facilitate deeper engagement with our partners and customers across industries.  
Distributors and Resellers  
Organizations also license our products and services indirectly, primarily through l icensing solution partners (“LSP”), 
distributors, value -added resellers (“VAR”), and retailers. Although each type of reselling partner may reach organizations 
of all sizes, LSPs are primarily engaged with large organizations, distributors resell primarily  to VARs, and VARs typically


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24 reach small and medium organizations. ESAs are also typically authorized as LSPs and operate as resellers for our other 
volume licensing programs. Microsoft Cloud Solution Provider is our main partner program for reselling clou d services.  
We distribute our retail packaged products primarily through independent non -exclusive distributors, authorized replicators, 
resellers, and retail outlets. Individual consumers obtain these products primarily through retail outlets. We distrib ute our 
devices through third -party retailers. We have a network of field sales representatives and field support personnel that solicit 
orders from distributors and resellers and provide product training and sales support.  
Our Dynamics business solutions  are also licensed to enterprises through a global network of channel partners providing 
vertical solutions and specialized services.  
  
LICENSING OPTIONS  
We offer options for organizations that want to purchase our cloud services, on -premises software, a nd SA. We license 
software to organizations under volume licensing agreements to allow the customer to acquire multiple licenses of products 
and services instead of having to acquire separate licenses through retail channels. We use different programs desi gned to 
provide flexibility for organizations of various sizes. While these programs may differ in various parts of the world, genera lly 
they include those discussed below.  
SA conveys rights to new software and upgrades for perpetual licenses released ove r the contract period. It also provides 
support, tools, training, and other licensing benefits to help customers deploy and use software efficiently. SA is included 
with certain volume licensing agreements and is an optional purchase with others.  
Volume L icensing Programs  
Enterprise Agreement  
Enterprise Agreements offer large organizations a manageable volume licensing program that gives them the flexibility to 
buy cloud services and software licenses under one agreement. Enterprise Agreements are design ed for medium or large 
organizations that want to license cloud services and on -premises software organization -wide over a three -year period. 
Organizations can elect to purchase perpetual licenses or subscribe to licenses. SA is included.  
Microsoft Custom er Agreement  
A Microsoft Customer Agreement is a simplified purchase agreement presented, accepted, and stored through a digital 
experience. A Microsoft Customer Agreement is a non -expiring agreement that is designed to support all customers over 
time, wh ether purchasing through a partner or directly from Microsoft.  
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Microsoft Online Subscription Agreement  
A Microsoft Online Subscription Agreement is designed for small and medium organizations that want to subscribe to, 
activate, provision, and maintain cloud services seamlessly and directly via the web. The agreement allows customers to 
acquire monthly or a nnual subscriptions for cloud -based services.  
Microsoft Products and Services Agreement  
Microsoft Products and Services Agreements are designed for medium and large organizations that want to license cloud 
services and on -premises software as needed, wit h no organization -wide commitment, under a single, non -expiring 
agreement. Organizations purchase perpetual licenses or subscribe to licenses. SA is optional for customers that purchase 
perpetual licenses.  
Open Value  
Open Value agreements are a simple, c ost-effective way to acquire the latest Microsoft technology. These agreements are 
designed for small and medium organizations that want to license cloud services and on -premises software over a three -
year period. Under Open Value agreements, organizations  can elect to purchase perpetual licenses or subscribe to licenses 
and SA is included.


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25 Select Plus  
A Select Plus agreement is designed for government and academic organizations to acquire on -premises licenses at any 
affiliate or department level, while r ealizing advantages as one organization. Organizations purchase perpetual licenses 
and SA is optional.  
  
Partner Programs  
The Microsoft Cloud Solution Provider Program offers customers an easy way to license the cloud services they need in 
combination wi th the value -added services offered by their systems integrator, managed services provider, or cloud reseller 
partner. Partners in this program can easily package their own products and services to directly provision, manage, and 
support their customer sub scriptions.  
The Microsoft Services Provider License Agreement allows hosting service providers and independent software vendors 
who want to license eligible Microsoft software products to provide software services and hosted applications to their end 
customers. Partners license software over a three -year period and are billed monthly based on consumption.  
The Independent Software Vendor Royalty Program enables partners to integrate Microsoft products into other applications 
and then license the unified bu siness solution to their end users.  
CUSTOMERS  
Our customers include individual consumers, small and medium organizations, large global enterprises, public -sector 
institutions, Internet service providers, application developers, and OEMs.  Our practice is to ship our products promptly 
upon receipt of purchase orders from customers; consequently, backlog is not significant.  
AVAILABLE INFORMATION  
Our Internet address is www.microsoft.com. At our Investor Relations website, www.microsoft.com/investor, we make 
available free of charge a variety of information for investors. Our goal is to maintain the Investor Relations website as a 
portal through wh ich investors can easily find or navigate to pertinent information about us, including:  
• Our annual report on Form 10 -K, quarterly reports on Form 10 -Q, current reports on Form 8 -K, and any 
amendments to those reports, as soon as reasonably practicable a fter we electronically file that material with 
or furnish it to the Securities and Exchange Commission (“SEC”) at www.sec.gov.  
• Information on our business strategies, financial results, and metrics for investors.  
• Announcements of investor conferences, speeches, and events at which our executives talk about our product, 
service, and competitive strategies. Archives of these events are also available.


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service, and competitive strategies. Archives of these events are also available.  
• Press releases on quarterly earnings, product and service annou ncements, legal developments, and 
international news.  
• Corporate governance information including our articles of incorporation, bylaws, governance guidelines, 
committee charters, codes of conduct and ethics, global corporate social responsibility initia tives, and other 
governance -related policies.  
• Other news and announcements that we may post from time to time that investors might find useful or 
interesting.  
• Opportunities to sign up for email alerts to have information pushed in real time.  
We publ ish a variety of reports and resources related to our Corporate Social Responsibility programs and progress on our 
Reports Hub website, www.microsoft.com/corporate -responsibility/reports -hub, including reports on sustainability, 
responsible sourcing, acces sibility, digital trust, and public policy engagement.  
The information found on these websites is not part of, or incorporated by reference into, this or any other report we file 
with, or furnish to, the SEC. In addition to these channels, we use social m edia to communicate to the public. It is possible 
that the information we post on social media could be deemed to be material to investors. We encourage investors, the 
media, and others interested in Microsoft to review the information we post on the socia l media channels listed on our 
Investor Relations website.


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27 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF 
OPERATIONS  
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A” ) is 
intended to help the reader understand the results of operations and financial condition of Microsoft Corporation. MD&A is 
provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the 
accompanying Notes to Financial Statements. This section generally discusses the results of our operations for the year 
ended June  30, 2023 compared to the year ended June  30, 2022. For a discussion of the year ended June  30, 2022 
compared to the year ended June  30, 20 21, please refer to, “Management’s Discussion and Analysis of Financial Condition 
and Results of Operations” in our Annual Report on Form 10 -K for the year ended June  30, 2022.  
OVERVIEW  
Microsoft is a technology company whose mission is to empower every person and every organization on the planet to 
achieve more. We strive to create local opportunity, growth, and impact in every country around the world. We are creating 
the platforms and tools, powered by artificial intelligence (“AI”), that deliver bette r, faster, and more effective solutions to 
support small and large business competitiveness, improve educational and health outcomes, grow public -sector efficiency, 
and empower human ingenuity.  
We generate revenue by offering a wide range of cloud -based s olutions, content, and other services to people and 
businesses; licensing and supporting an array of software products; delivering relevant online advertising to a global 
audience; and designing and selling devices. Our most significant expenses are relate d to compensating employees; 
supporting and investing in our cloud -based services, including datacenter operations; designing, manufacturing, marketing, 
and selling our other products and services; and income taxes.  
Highlights from fiscal year 2023 compar ed with fiscal year 2022 included:  
• Microsoft Cloud revenue increased 22% to $111.6  billion.  
• Office Commercial products and cloud services revenue increased 10% driven by Office 365 Commercial 
growth of 13%.


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growth of 13%.  
• Office Consumer products and cloud servi ces revenue increased 2% and Microsoft 365 Consumer subscribers 
increased to 67.0  million.  
• LinkedIn revenue increased 10%.  
• Dynamics products and cloud services revenue increased 16% driven by Dynamics 365 growth of 24%.  
• Server products and cloud s ervices revenue increased 19% driven by Azure and other cloud services growth 
of 29%.  
• Windows original equipment manufacturer licensing (“Windows OEM”) revenue decreased 25%.  
• Devices revenue decreased 24%.  
• Windows Commercial products and cloud services revenue increased 5%.  
• Xbox content and services revenue decreased 3%.  
• Search and news advertising revenue excluding traffic acquisition costs increased 11%.  
Industry Trends  
Our industry is dynamic and highly competitive, with frequent changes in both technologies and business models. Each 
industry shift is an opportunity to conceive new products, new technologies, or new ideas that can further transform the 
industry and our business. At Microsoft, we pu sh the boundaries of what is possible through a broad range of research and 
development activities that seek to identify and address the changing demands of customers and users, industry trends, 
and competitive forces.  
  
Economic Conditions, Challenges, and Risks  
The markets for software, devices, and cloud -based services are dynamic and highly competitive. Our competitors are 
developing new software and devices, while also deploying competing cloud -based services for con sumers and businesses.


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28 The devices and form factors customers prefer evolve rapidly, influencing how users access services in the cloud and, in 
some cases, the user’s choice of which suite of cloud -based services to use. Aggregate demand for our software, services, 
and devices is also correlated to global macroeconomic and geopolitical factors, which remain dynamic. We must continue 
to evolve and adapt over an extended time in pace with this changing environment.  
The investments we are making in cloud and AI infrastructure and devices will continue to increase our operating costs and 
may decrease our operating margins. We continue to identify and evaluate opportunities to expand our datacenter locations 
and increase our server capacity to meet the evolving needs of our customers, particularly given the growing demand for 
AI services. Our datacenters depend on the availability of permitted and buildable land, predictable energy, networking 
supplies, and servers, including graphics processing units (“GPUs”) an d other components. Our devices are primarily 
manufactured by third -party contract manufacturers. For the majority of our products, we have the ability to use other 
manufacturers if a current vendor becomes unavailable or unable to meet our requirements. H owever, some of our products 
contain certain components for which there are very few qualified suppliers. Extended disruptions at these suppliers could 
impact our ability to manufacture devices on time to meet consumer demand.  
Our success is highly depend ent on our ability to attract and retain qualified employees. We hire a mix of university and 
industry talent worldwide. We compete for talented individuals globally by offering an exceptional working environment, 
broad customer reach, scale in resources, the ability to grow one’s career across many different products and businesses, 
and competitive compensation and benefits.  
Our international operations provide a significant portion of our total revenue and expenses. Many of these revenue and 
expenses are  denominated in currencies other than the U.S. dollar. As a result, changes in foreign exchange rates may 
significantly affect revenue and expenses. Fluctuations in the U.S. dollar relative to certain foreign currencies reduced 
reported revenue and expense s from our international operations in fiscal year 2023.  
On January  18, 2023, we announced decisions we made to align our cost structure with our revenue and customer demand,


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prioritize our investments in strategic areas, and consolidate office space. As a result, we recorded a $1.2  billion charge in 
the second quarter of fiscal year 2023 (“Q2 charge”), which included employee severance expenses of $800  million, 
impairment charges resulting from changes to our hardware portfolio, and costs related to lease  consolidation activities. 
First, we reduced our overall workforce by approximately 10,000 jobs through the third quarter of fiscal year 2023 related to  
the Q2 charge, which represents less than 5% of our total employee base. While we eliminated roles in s ome areas, we will 
continue to hire in key strategic areas. Second, we are allocating both our capital and talent to areas of secular growth and  
long-term competitiveness, while divesting in other areas. Third, we are consolidating our leases to create hig her density 
across our workspaces, which impacted our financial results through the remainder of fiscal year 2023, and we may make 
similar decisions in future periods as we continue to evaluate our real estate needs.  
Refer to Risk Factors in our fiscal ye ar 2023 Form 10 -K for a discussion of these factors and other risks.  
Seasonality  
Our revenue fluctuates quarterly and is generally higher in the second and fourth quarters of our fiscal year. Second quarter  
revenue is driven by corporate year -end spendin g trends in our major markets and holiday season spending by consumers, 
and fourth quarter revenue is driven by the volume of multi -year on -premises contracts executed during the period.   
Change in Accounting Estimate  
In July 2022, we completed an assessm ent of the useful lives of our server and network equipment. Due to investments in 
software that increased efficiencies in how we operate our server and network equipment, as well as advances in 
technology, we determined we should increase the estimated us eful lives of both server and network equipment from four 
years to six years. This change in accounting estimate was effective beginning fiscal year 2023. Based on the carrying 
amount of server and network equipment included in property and equipment, net as of June  30, 2022, the effect of this


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change in estimate for fiscal year 2023 was an increase in operating income of $3.7  billion and net income of $3.0  billion, 
or $0.40 per both basic and diluted share.  
Reportable Segments  
We report our financial performance based on the following segments: Productivity and Business Processes, Intelligent 
Cloud, and More Personal Computing. The segment amounts included in MD&A are presented on a basis consistent with 
our internal management reporting. We have recast certain prior period amounts to conform to the way we internally manage 
and monitor our business.


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29 Additional information on our reportable segments is contained in Note 19 – Segment Information and Geographic Data of 
the Notes to  Financial Statements.  
Metrics  
We use metrics in assessing the performance of our business and to make informed decisions regarding the allocation of 
resources. We disclose metrics to enable investors to evaluate progress against our ambitions, provide t ransparency into 
performance trends, and reflect the continued evolution of our products and services. Our commercial and other business 
metrics are fundamentally connected based on how customers use our products and services. The metrics are disclosed in 
the MD&A or the Notes to Financial Statements. Financial metrics are calculated based on financial results prepared in 
accordance with accounting principles generally accepted in the United States of America (“GAAP”), and growth 
comparisons relate to the c orresponding period of last fiscal year.  
In the first quarter of fiscal year 2023, we made updates to the presentation and method of calculation for certain metrics, 
most notably expanding our Surface metric into a broader Devices metric to incorporate ad ditional revenue streams, along 
with other minor changes to align with how we manage our businesses.  
Commercial  
Our commercial business primarily consists of Server products and cloud services, Office Commercial, Windows 
Commercial, the commercial portio n of LinkedIn, Enterprise Services, and Dynamics. Our commercial metrics allow 
management and investors to assess the overall health of our commercial business and include leading indicators of future 
performance.  
  
Commercial remaining performance obliga tion Commercial portion of revenue allocated to remaining 
performance obligations, which includes unearned revenue 
and amounts that will be invoiced and recognized as 
revenue in future periods  
    
Microsoft Cloud revenue  Revenue from Azure and other cloud services, Office 365 
Commercial, the commercial portion of LinkedIn, Dynamics 
365, and other commercial cloud properties  
    
Microsoft Cloud gross margin percentage  Gross margin percentage for our Microsoft Cloud business  
  
Productivity and Business Processes and Intelligent Cloud  
Metrics related to our Productivity and Business Processes and Intelligent Cloud segments assess the health of our core 
businesses within these segments. The metrics reflect our cloud and on -premis es product strategies and trends.  
  
Office Commercial products and cloud services revenue 
growth  Revenue from Office Commercial products and cloud 
services (Office 365 subscriptions, the Office 365 portion of


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services (Office 365 subscriptions, the Office 365 portion of 
Microsoft 365 Commercial subscriptions, and Of fice 
licensed on -premises), comprising Office, Exchange, 
SharePoint, Microsoft Teams, Office 365 Security and 
Compliance, Microsoft Viva, and Microsoft 365 Copilot  
    
Office Consumer products and cloud services revenue 
growth  Revenue from Office Consumer products and cloud 
services, including Microsoft 365 Consumer subscriptions, 
Office licensed on -premises, and other Office services  
    
Office 365 Commercial seat growth  The number of Office 365 Commercial seats at end of 
period where seats are paid users covered by an Office 365 
Commercial subscription  
    
Microsoft 365 Consumer subscribers  The number of Microsoft 365 Consumer subscribers at end 
of period  
    
Dynamics products and cloud services revenue growth  Revenue from Dynamics products and cloud services, 
including Dynamics 365, comprising a set of intelligent, 
cloud -based applications across ERP, CRM (including 
Customer Insights), Power Apps, and Power Automate; 
and on -premises ERP and CRM applications


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30     
LinkedIn revenue growth  Reve nue from LinkedIn, including Talent Solutions, 
Marketing Solutions, Premium Subscriptions, and Sales 
Solutions  
    
Server products and cloud services revenue growth  Revenue from Server products and cloud services, 
including Azure and other cloud services; SQL Server, 
Windows Server, Visual Studio, System Center, and related 
Client Access Licenses (“CALs”); and Nuance and GitHub  
More Personal Computing  
Metrics related to our More Personal Computing segment assess the performance of key lines of business within this 
segment. These metrics provide strategic product insights which allow us to assess the performance across our commercial 
and consumer busines ses. As we have diversity of target audiences and sales motions within the Windows business, we 
monitor metrics that are reflective of those varying motions.  
  
Windows OEM revenue growth  Revenue from sales of Windows Pro and non -Pro licenses 
sold through the OEM channel  
    
Windows Commercial products and cloud services 
revenue growth  Revenue from Windows Commercial products and cloud 
services, comprising volume licensing of the Windows 
operating system, Windows cloud services, and other 
Windows commercial offerings  
    
Devices revenue growth  Revenue from Devices, including Surface, HoloLens, and 
PC accessories  
Xbox content and services revenue growth  Revenue from Xbox content and services, comprising first - 
and third -party content (including games and in -game 
content), Xbox Game Pass and other subscriptions, Xbox 
Cloud Gaming, advertising, third -party disc royalties, and 
other cloud services  
    
Search and news advertising revenue (ex TAC) growth  Revenue from search and news advertising excluding traffic 
acquisition costs (“TAC”) paid to Bing Ads network 
publishers and news partners  
SUMMARY RESULTS OF OPERATIONS  
  
(In millions,  except  percentages  and per share  amounts)  2023  2022  Percentage  
Change    
        
Revenue  $  211,915   $  198,270    7%  
Gross margin   146,052    135,620    8%  
Operating income   88,523    83,383    6%  
Net income   72,361    72,738    (1)%


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Diluted earnings per share   9.68   9.65   0%  
        
Adjusted gross margin (non -GAAP)   146,204    135,620    8%  
Adjusted operating income (non -GAAP)   89,694    83,383    8%  
Adjusted net income (non -GAAP)   73,307    69,447    6%  
Adjusted diluted earnings per share (non -GAAP)   9.81   9.21   7%    
Adjusted gross margin, operating income, net income, and diluted earnings per share (“EPS”) are non -GAAP financial 
measures. Current year non -GAAP financial measures exclude the impact of the Q2 charge, which includes employee 
severance expenses, impairmen t charges resulting from changes to our hardware portfolio, and costs related to lease 
consolidation activities. Prior year non -GAAP financial measures exclude the net  income tax benefit related to transfer of 
intangible properties in the first quarter of fiscal year 2022. Refer to Note 12 – Income Taxes of the Notes to Financial 
Statements for further discussion. Refer to the Non -GAAP Financial Measures section below for a reconciliation of our 
financial results reported in accordance with GAAP to non -GAAP  financial results.


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31 Fiscal Year 2023 Compared with Fiscal Year 2022  
Revenue increased $13.6  billion or 7% driven by growth in Intelligent Cloud and Productivity and Business Processes, offset 
in part by a decline in More Personal Computing. Intelligent C loud revenue increased driven by Azure and other cloud 
services. Productivity and Business Processes revenue increased driven by Office 365 Commercial and LinkedIn. More 
Personal Computing revenue decreased driven by Windows and Devices.  
Cost of revenue i ncreased $3.2  billion or 5% driven by growth in Microsoft Cloud, offset in part by the change in accounting 
estimate.  
Gross margin increased $10.4  billion or 8% driven by growth in Intelligent Cloud and Productivity and Business Processes 
and the change i n accounting estimate, offset in part by a decline in More Personal Computing.  
• Gross margin percentage increased slightly. Excluding the impact of the change in accounting estimate, gross 
margin percentage decreased 1 point driven by declines in Intelli gent Cloud and More Personal Computing, 
offset in part by sales mix shift between our segments.  
• Microsoft Cloud gross margin percentage increased 2 points to 72%. Excluding the impact of the change in 
accounting estimate, Microsoft Cloud gross margin pe rcentage decreased slightly driven by a decline in Azure 
and other cloud services and sales mix shift to Azure and other cloud services, offset in part by improvement 
in Office 365 Commercial.  
  
Operating expenses increased $5.3  billion or 10% driven by e mployee severance expenses, 2 points of growth from the 
Nuance and Xandr acquisitions, investments in cloud engineering, and LinkedIn.  
Operating income increased $5.1  billion or 6% driven by growth in Productivity and Business Processes and Intelligent 
Cloud and the change in accounting estimate, offset in part by a decline in More Personal Computing.  
Revenue, gross margin, and operating income included an unfavorable foreign currency impact of 4%, 4%, and 6%, 
respectively. Cost of revenue and operating expenses both included a favorable foreign currency impact of 2%.  
Current year gross margin, operati ng income, net income, and diluted EPS were negatively impacted by the Q2 charge,


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which resulted in decreases of $152  million, $1.2  billion, $946  million, and $0.13, respectively. Prior year net income and 
diluted EPS were positively impacted by the net ta x benefit related to the transfer of intangible properties, which resulted in 
an increase to net income and diluted EPS of $3.3  billion and $0.44, respectively.  
SEGMENT RESULTS OF OPERATIONS  
  
(In millions, except percentages)  2023  2022  Percentage  
Change    
        
Revenue        
        
Productivity and Business Processes  $ 69,274   $ 63,364    9%  
Intelligent Cloud   87,907    74,965    17%  
More Personal Computing   54,734    59,941    (9)%         
Total  $  211,915   $  198,270    7%          
        
Operating Income        
        
Productivity and Business Processes  $ 34,189   $ 29,690    15%  
Intelligent Cloud   37,884    33,203    14%  
More Personal Computing   16,450    20,490    (20)%         
Total  $ 88,523   $ 83,383    6%          
Reportable Segments  
Fiscal Year 2023 Compared with Fiscal Year 2022  
Productivity and Business Processes  
Revenue increased $5.9  billion or 9%.  
• Office Commercial products and cloud services revenue increased $3.7  billion or 10%. Office 365 Commercial 
revenue grew 13% with seat growth of 11%, driven by small and medium business and frontline worker 
offerings, as well as growth in revenue per user. Office Commercial products revenue declined 21% driven by 
continued customer shift to cloud offerings.


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32 • Office Consumer products and cloud services revenue increased $140  million or 2%. Microsoft 365 Consumer 
subscribers grew 12% to 67.0  million.  
• LinkedIn revenue increased $1.3  billion or 10% driven by Talent Solutions.  
• Dynamics products and cloud serv ices revenue increased $750  million or 16% driven by Dynamics 365 growth 
of 24%.  
Operating income increased $4.5  billion or 15%.  
• Gross margin increased $5.8  billion or 12% driven by growth in Office 365 Commercial and LinkedIn, as well 
as the change in  accounting estimate. Gross margin percentage increased. Excluding the impact of the change 
in accounting estimate, gross margin percentage increased slightly driven by improvement in Office 365 
Commercial, offset in part by sales mix shift to cloud offeri ngs.  
  
• Operating expenses increased $1.3  billion or 7% driven by investment in LinkedIn and employee severance 
expenses.  
Revenue, gross margin, and operating income included an unfavorable foreign currency impact of 5%, 5%, and 8%, 
respectively.  
Intelligent Cloud  
Revenue increased $12.9  billion or 17%.  
• Server products and cloud services revenue increased $12.6  billion or 19% driven by Azure and other cloud 
services. Azure and other cloud services revenue grew 29% driven by growth in our consumption -based 
services. Server products revenue decreased 1%.  
• Enterprise Services revenue increased $315  million or 4% driven by growth in Enterprise Support Services, 
offset in part by a decline in Industry Solutions (formerly Microsoft Consulting Services).  
Operating income increased $4.7  billion or 14%.  
• Gross margin increased $8.9  billion or 17% driven by growth in Azure and other cloud services and the change 
in accounting estimate. Gross margin percentage decreased slightly. Excluding the impact of the  change in 
accounting estimate, gross margin percentage decreased 3 points driven by sales mix shift to Azure and other 
cloud services and a decline in Azure and other cloud services.  
• Operating expenses increased $4.2  billion or 21% driven by investment s in Azure, 4 points of growth from the


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Nuance acquisition, and employee severance expenses.  
Revenue, gross margin, and operating income included an unfavorable foreign currency impact of 4%, 4%, and 6%, 
respectively. Operating expenses included a favorab le foreign currency impact of 2%.  
More Personal Computing  
Revenue decreased $5.2  billion or 9%.  
• Windows revenue decreased $3.2  billion or 13% driven by a decrease in Windows OEM. Windows OEM 
revenue decreased 25% as elevated channel inventory levels continued to drive additional weakness beyond 
declining PC demand. Windows Commercial products and clo ud services revenue increased 5% driven by 
demand for Microsoft 365.  
• Devices revenue decreased $1.8  billion or 24% as elevated channel inventory levels continued to drive 
additional weakness beyond declining PC demand.  
• Gaming revenue decreased $764  million or 5% driven by declines in Xbox hardware and Xbox content and 
services. Xbox hardware revenue decreased 11% driven by lower volume and price of consoles sold. Xbox 
content and services revenue decreased 3% driven by a  decline in first -party content, offset in part by growth 
in Xbox Game Pass.  
• Search and news advertising revenue increased $617  million or 5%. Search and news advertising revenue 
excluding traffic acquisition costs increased 11% driven by higher search volume and the Xandr acquisition.


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33 Operating income decreased $4.0  billion or 20%.  
• Gross margin decreased $4.2  billion or 13% driven by declines in Windows and Devices. Gross margin 
percentage decreased driven by a decline in Devices.  
• Operating expen ses decreased $195  million or 2% driven by a decline in Devices, offset in part by investments 
in Search and news advertising, including 2 points of growth from the Xandr acquisition.  
Revenue, gross margin, and operating income included an unfavorable for eign currency impact of 3%, 4%, and 6%, 
respectively. Operating expenses included a favorable foreign currency impact of 2%.  
  
OPERATING EXPENSES  
Research and Development  
  
(In millions, except percentages)  2023  2022  Percentage  
Change    
        
Research and development  $   27,195    $   24,512     11%  
As a percent of revenue   13%     12%     1ppt    
Research and development expenses include payroll, employee benefits, stock -based compensation expense, and other 
headcount -related expenses associated with product development. Research and development expenses also include third -
party development and pro gramming costs and the amortization of purchased software code and services content.  
Fiscal Year 2023 Compared with Fiscal Year 2022  
Research and development expenses increased $2.7  billion or 11% driven by investments in cloud engineering and 
LinkedIn.  
Sales and Marketing  
  
(In millions, except percentages)  2023  2022  Percentage  
Change    
        
Sales and marketing  $   22,759    $   21,825     4%  
As a percent of revenue   11%     11%     0ppt    
Sales and marketing expenses include payroll, employee benefits, stock -based compensation expense, and other 
headcount -related expenses associated with sales and marketing personnel, and the costs of advertising, promotions, trade 
shows, seminars, and othe r programs.  
Fiscal Year 2023 Compared with Fiscal Year 2022


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Fiscal Year 2023 Compared with Fiscal Year 2022  
Sales and marketing expenses increased $934  million or 4% driven by 3 points of growth from the Nuance and Xandr 
acquisitions and investments in commercial sales, offset in part by a decline in Windows advertising. Sales and marketing 
included a favorable foreign currency impact of 2%.  
General and Administrative  
  
(In millions, except percentages)  2023  2022  Percentage  
Change    
        
General and administrative  $   7,575    $   5,900     28%  
As a percent of revenue   4%    3%    1ppt    
General and administrative expenses include payroll, employee benefits, stock -based compensation expense, employee 
severance expense incurred as part of a corporate program, and other headcount -related expenses associated with finance, 
legal, facilities, c ertain human resources and other administrative personnel, certain taxes, and legal and other 
administrative fees.


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34 Fiscal Year 2023 Compared with Fiscal Year 2022  
General and administrative expenses increased $1.7  billion or 28% driven by employee severa nce expenses and a charge 
related to a non -public preliminary draft decision provided by the Irish Data Protection Commission. General and 
administrative included a favorable foreign currency impact of 2%.  
  
OTHER INCOME (EXPENSE), NET  
The components of other income (expense), net were as follows:  
  
(In millions)        
      
Year Ended June  30, 2023  2022  
      
Interest and dividends income  $    2,994   $    2,094   
Interest expense   (1,968 )  (2,063 ) 
Net recognized gains on investments   260   461  
Net losses on derivatives   (456)  (52) 
Net gains (losses) on foreign currency remeasurements   181   (75) 
Other, net   (223)  (32)     
Total  $ 788  $ 333        
We use derivative instruments to manage risks related to foreign currencies, equity prices, interest rates, and credit; 
enhance investment returns; and facilitate portfolio diversification. Gains and losses from changes in fair values of 
derivatives that a re not designated as hedging instruments are primarily recognized in other income (expense), net.  
Fiscal Year 2023 Compared with Fiscal Year 2022  
Interest and dividends income increased due to higher yields, offset in part by lower portfolio balances. In terest expense 
decreased due to a decrease in outstanding long -term debt due to debt maturities. Net recognized gains on investments 
decreased due to lower gains on equity securities and higher losses on fixed income securities. Net losses on derivatives 
increased due to losses related to managing strategic investments.  
INCOME TAXES  
Effective Tax Rate  
Our effective tax rate for fiscal years 2023 and 2022 was 19% and 13%, respectively.  The increase in our effective tax rate 
was primarily due to a $3.3  billion net income tax benefit in the first quarter of fiscal year 2022 related to the transfer of 
intan gible properties and a decrease in tax benefits relating to stock -based compensation.


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In the first quarter of fiscal year 2022, we transferred certain intangible properties from our Puerto Rico subsidiary to the  
U.S. The transfer of intangible properties resulted in a $3.3  billion net income tax benefit in the first quarter of fiscal year 
2022, as the value of future U.S. tax deductions exceeded the current tax liability from the U.S. global intangible low -taxed 
income tax.  
Our effective tax rate was lowe r than the U.S. federal statutory rate, primarily due to earnings taxed at lower rates in foreign 
jurisdictions resulting from producing and distributing our products and services through our foreign regional operations 
center in Ireland.  
The mix of income before income taxes between the U.S. and foreign countries impacted our effective tax rate as a result 
of the geographic distribution of, and customer demand for, our products and services. In fiscal year 2023, our U.S. income 
before inco me taxes was $52.9  billion and our foreign income before income taxes was $36.4  billion. In fiscal year 2022, 
our U.S. income before income taxes was $47.8  billion and our foreign income before income taxes was $35.9  billion.


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35 Uncertain Tax Positions  
We settled a portion of the Internal Revenue Service (“IRS”) audit for tax years 2004 to 2006 in fiscal year 2011. In February 
2012, the IRS withdrew its 2011 Revenue Agents Report related to unresolved issues for tax years 2004 to 2006 and 
reopened the audi t phase of the examination. We also settled a portion of the IRS audit for tax years 2007 to 2009 in fiscal 
year 2016, and a portion of the IRS audit for tax years 2010 to 2013 in fiscal year 2018. In the second quarter of fiscal yea r 
2021, we settled an a dditional portion of the IRS audits for tax years 2004 to 2013 and made a payment of $1.7  billion, 
including tax and interest. We remain under audit for tax years 2004 to 2017.  
As of June  30, 2023, the primary unresolved issues for the IRS audits relate t o transfer pricing, which could have a material 
impact in our consolidated financial statements when the matters are resolved. We believe our allowances for income tax 
contingencies are adequate. We have not received a proposed assessment for the unresolve d key transfer pricing issues. 
We do not expect a final resolution of these issues in the next 12 months.  Based on the information currently available, we 
do not anticipate a significant increase or decrease to our tax contingencies for these issues within  the next 12 months.  
We are subject to income tax in many jurisdictions outside the U.S. Our operations in certain jurisdictions remain subject to  
examination for tax years 1996 to 2022, some of which are currently under audit by local tax authorities. Th e resolution of 
each of these audits is not expected to be material to our consolidated financial statements.  
NON -GAAP FINANCIAL MEASURES  
Adjusted gross margin, operating income, net income, and diluted EPS are non -GAAP financial measures. Current year 
non-GAAP financial measures exclude the impact of the Q2 charge, which includes employee severance expenses, 
impairment charges resulting from changes to our hardware portfolio, and costs related to lease consolidation activities.


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Prior year non -GAAP financ ial measures exclude the net income tax benefit related to transfer of intangible properties in 
the first quarter of fiscal year 2022. We believe these non -GAAP measures aid investors by providing additional insight into 
our operational performance and hel p clarify trends affecting our business. For comparability of reporting, management 
considers non -GAAP measures in conjunction with GAAP financial results in evaluating business performance. These non -
GAAP financial measures presented should not be conside red a substitute for, or superior to, the measures of financial 
performance prepared in accordance with GAAP.  
The following table reconciles our financial results reported in accordance with GAAP to non -GAAP financial results:  
  
(In millions, except perc entages and per share amounts)  2023  2022  Percentage  
Change    
Gross margin  $ 146,052   $ 135,620    8%  
Severance, hardware -related impairment, and lease consolidation costs   152   0   *        
Adjusted gross margin (non -GAAP)  $  146,204   $   135,620    8%          
        
Operating income  $ 88,523   $ 83,383    6%  
Severance, hardware -related impairment, and lease consolidation costs   1,171    0   *        
Adjusted operating income (non -GAAP)  $ 89,694   $ 83,383    8%          
        
Net income  $ 72,361   $ 72,738    (1)%   
Severance, hardware -related impairment, and lease consolidation costs   946   0   *  
Net income tax benefit related to transfer of intangible properties   0   (3,291 )  *        
Adjusted net income (non -GAAP)  $ 73,307   $ 69,447    6%          
        
Diluted earnings per share  $ 9.68  $ 9.65   0%  
Severance, hardware -related impairment, and lease consolidation costs   0.13   0   *  
Net income tax benefit related to transfer of intangible properties   0   (0.44 )  *


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36 LIQUIDITY AND CAPITAL RESOURCES  
We expect existing cash, cash equivalents, short -term investments, cash flows from operations, and access to capital 
markets to continue to be sufficient to fund our operating activities and cash commitments for investing and financing 
activities, such as dividends, share repurchases, debt maturities, material capital expenditures, and the transition tax related 
to the Tax Cuts and Jobs Act (“TCJA”), for at least the next 12 months and thereafter for the foreseeable future.  
Cash, Cash Equivalents, and Inve stments  
Cash, cash equivalents, and short -term investments totaled $111.3  billion and $104.8  billion as of June  30, 2023 and 2022, 
respectively. Equity investments were $9.9  billion and $6.9  billion as of June  30, 2023 and 2022, respectively. Our short -
term investments are primarily intended to facilitate liquidity and capital preservation. They consist predominantly of highly 
liquid investment -grade fixed -income securities, diversified among industries and individual issuers. The investments are 
predomina ntly U.S. dollar -denominated securities, but also include foreign currency -denominated securities to diversify risk. 
Our fixed -income investments are exposed to interest rate risk and credit risk. The credit risk and average maturity of our 
fixed -income po rtfolio are managed to achieve economic returns that correlate to certain fixed -income indices. The 
settlement risk related to these investments is insignificant given that the short -term investments held are primarily highly 
liquid investment -grade fixed -income securities.  
Valuation  
In general, and where applicable, we use quoted prices in active markets for identical assets or liabilities to determine the  
fair value of our financial instruments. This pricing methodology applies to our Level  1 investment s, such as U.S. government 
securities, common and preferred stock, and mutual funds. If quoted prices in active markets for identical assets or liabilit ies 
are not available to determine fair value, then we use quoted prices for similar assets and liabilit ies or inputs other than the 
quoted prices that are observable either directly or indirectly. This pricing methodology applies to our Level  2 investments,


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such as commercial paper, certificates of deposit, U.S. agency securities, foreign government bonds, mortgage - and asset -
backed securities, corporate notes and bonds, and municipal securities. Level  3 investments are valued using internally -
developed models with unobservable inputs. Assets and liabilities measured at fair value on a recurring basis using 
unobservable inputs are an immaterial portion of our portfolio.  
A majority of our investments are priced by pricing vendors and are generally Level  1 or Level  2 investments as these 
vendors either provide a quoted market price in an active market or use o bservable inputs for their pricing without applying 
significant adjustments. Broker pricing is used mainly when a quoted price is not available, the investment is not priced by 
our pricing vendors, or when a broker price is more reflective of fair values i n the market in which the investment trades. 
Our broker -priced investments are generally classified as Level  2 investments because the broker prices these investments 
based on similar assets without applying significant adjustments. In addition, all our br oker-priced investments have a 
sufficient level of trading volume to demonstrate that the fair values used are appropriate for these investments. Our fair 
value processes include controls that are designed to ensure appropriate fair values are recorded. Th ese controls include 
model validation, review of key model inputs, analysis of period -over-period fluctuations, and independent recalculation of 
prices where appropriate.  
Cash Flows  
Cash from operations decreased $1.5  billion to $87.6  billion for fiscal year 2023, mainly due to an increase in cash paid to 
employees and suppliers and cash used to pay income taxes, offset in part by an increase in cash received from customers. 
Cash used in financing decreased $14.9  billion to $43.9  billion for fiscal year 2 023, mainly due to a $10.5  billion decrease 
in common stock repurchases and a $6.3  billion decrease in repayments of debt, offset in part by a $1.7  billion increase in 
dividends paid. Cash used in investing decreased $7.6  billion to $22.7  billion for fisca l year 2023, due to a $20.4  billion


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decrease in cash used for acquisitions of companies, net of cash acquired, and purchases of intangible and other assets, 
offset in part by a $8.2  billion decrease in cash from net investment purchases, sales, and maturit ies, and a $4.2  billion 
increase in additions to property and equipment.  
  
Debt Proceeds  
We issue debt to take advantage of favorable pricing and liquidity in the debt markets, reflecting our credit rating and the 
low interest rate environment. The proce eds of these issuances were or will be used for general corporate purposes, which 
may include, among other things, funding for working capital, capital expenditures, repurchases of capital stock, 
acquisitions, and repayment of existing debt. Refer to Note 11 – Debt of the Notes to Financial Statements for further 
discussion.


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37 Unearned Revenue  
Unearned revenue comprises mainly unearned revenue related to volume licensing programs, which may include Software 
Assurance (“SA”) and cloud services. Unearned reve nue is generally invoiced annually at the beginning of each contract 
period for multi -year agreements and recognized ratably over the coverage period. Unearned revenue also includes 
payments for other offerings for which we have been paid in advance and ea rn the revenue when we transfer control of the 
product or service. Refer to Note 1 – Accounting Policies of the Notes to Financial Statements for further discussion.  
The following table outlines the expected future recognition of unearned revenue as of Ju ne 30, 2023:  
  
(In millions)      
    
Three Months Ending    
    
September  30, 2023  $ 19,673   
December  31, 2023   15,600   
March  31, 2024   10,801   
June  30, 2024   4,827   
Thereafter   2,912     
Total  $   53,813       
If our customers choose to license cloud -based versions of our products and services rather than licensing transaction -
based products and services, the associated revenue will shift from being recognized at the time of the transaction to being 
recognized o ver the subscription period or upon consumption, as applicable. Refer to Note 13 – Unearned Revenue of the 
Notes to Financial Statements for further discussion.  
Material Cash Requirements and Other Obligations  
Contractual Obligations  
The following table  summarizes the payments due by fiscal year for our outstanding contractual obligations as of June  30, 
2023:  
  
(In millions)  2024  Thereafter  Total    
        
Long -term debt: (a)       
Principal payments  $ 5,250   $ 47,616   $ 52,866   
Interest payments   1,379    19,746    21,125   
Construction commitments (b)  12,237    1,218    13,455   
Operating and finance leases, including imputed interest (c)  5,988    73,852    79,840


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Purchase commitments (d)  64,703    3,115    67,818         
Total  $   89,557   $   145,547   $   235,104           
(a) Refer to Note 11 – Debt of the Notes to Financial Statements .  
(b) Refer to Note 7 – Property and Equipment of the Notes to Financial Statements .  
(c) Refer to Note 14 – Leases of the Notes to Financial Statements .  
(d) Purchase commitments primarily relate to datacenters and include open purchase orders and take -or-pay contracts 
that are not presented as construction commitments above.   
Income Taxes  
As a result of the TCJA, we are required to pay a one -time transition t ax on deferred foreign income not previously subject 
to U.S. income tax. Under the TCJA, the transition tax is payable in interest -free installments over eight years, with 8% due 
in each of the first five years, 15% in year six, 20% in year seven, and 25% in year eight. We have paid transition tax of 
$7.7 billion, which included $1.5  billion for fiscal year 2023. The remaining transition tax of $10.5  billion is payable over the 
next three years, with $2.7  billion payable within 12 months.  
In fiscal year 20 23, we paid cash tax of $4.8  billion due to the mandatory capitalization for tax purposes of research and 
development expenditures enacted by the TCJA and effective on July  1, 2022.


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38 Share Repurchases  
During fiscal years 2023 and 2022, we repurchased 69  million shares and 95  million shares of our common stock for 
$18.4  billion and $28.0  billion, respectively, through our share repurchase programs. All repurchases were made using cash 
resources. As of June  30, 2023, $22.3  billion remained of our $60  billion  share repurchase program. Refer to Note 16 – 
Stockholders’ Equity of the Notes to Financial Statements for further discussion.  
Dividends  
During fiscal year 2023 and 2022, our Board of Directors declared quarterly dividends of $0.68 per share and $0.62 p er 
share, totaling $20.2  billion and $18.6  billion, respectively. We intend to continue returning capital to shareholders in the 
form of dividends, subject to declaration by our Board of Directors. Refer to Note 16 – Stockholders’ Equity of the Notes to 
Financial Statements for further discussion.  
Other Planned Uses of Capital  
On January  18, 2022, we entered into a definitive agreement to acquire Activision Blizzard, Inc. (“Activision Blizzard”) for 
$95.00 per share in an all -cash transaction valued at $68.7  billion, inclusive of Activision Blizzard’s net cash. The acquisition 
has been approved by Activision Blizzard’s shareholders. We continue to work toward closing the transaction subject to 
obtaining required regulatory approvals and satisfaction of other customary closing conditions. Microsoft and Activision 
Blizzard have joi ntly agreed to extend the merger agreement through October  18, 2023 to allow for additional time to resolve 
remaining regulatory concerns.  
We will continue to invest in sales, marketing, product support infrastructure, and existing and advanced areas of 
technology, as well as acquisitions that align with our business strategy. Additions to property and equipment will continue, 
including new facilities, datacenters, and computer systems for research and development, sales and marketing, support, 
and adminis trative staff. We expect capital expenditures to increase in coming years to support growth in our cloud offerings 
and our investments in AI infrastructure. We have operating and finance leases for datacenters, corporate offices, research


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and development f acilities, Microsoft Experience Centers, and certain equipment. We have not engaged in any related party 
transactions or arrangements with unconsolidated entities or other persons that are reasonably likely to materially affect 
liquidity or the availabilit y of capital resources.  
CRITICAL ACCOUNTING ESTIMATES  
Our consolidated financial statements and accompanying notes are prepared in accordance with GAAP. Preparing 
consolidated financial statements requires management to make estimates and assumptions that affect the reported 
amounts of assets, liabilities, re venue, and expenses. Critical accounting estimates are those estimates that involve a 
significant level of estimation uncertainty and could have a material impact on our financial condition or results of operati ons. 
We have critical accounting estimates in  the areas of revenue recognition, impairment of investment securities, goodwill, 
research and development costs, legal and other contingencies, income taxes, and inventories.  
  
Revenue Recognition  
Our contracts with customers often include promises to t ransfer multiple products and services to a customer. Determining 
whether products and services are considered distinct performance obligations that should be accounted for separately 
versus together may require significant judgment. When a cloud -based ser vice includes both on -premises software licenses 
and cloud services, judgment is required to determine whether the software license is considered distinct and accounted 
for separately, or not distinct and accounted for together with the cloud service and r ecognized over time. Certain cloud 
services, primarily Office 365, depend on a significant level of integration, interdependency, and interrelation between the 
desktop applications and cloud services, and are accounted for together as one performance oblig ation. Revenue from 
Office 365 is recognized ratably over the period in which the cloud services are provided.  
Judgment is required to determine the stand -alone selling price (“SSP”) for each distinct performance obligation. We use a 
single amount to esti mate SSP for items that are not sold separately, including on -premises licenses sold with SA or software 
updates provided at no additional charge. We use a range of amounts to estimate SSP when we sell each of the products 
and services separately and need to determine whether there is a discount to be allocated based on the relative SSP of the 
various products and services.


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various products and services.  
In instances where SSP is not directly observable, such as when we do not sell the product or service separately, we 
determine the SSP  using information that may include market conditions and other observable inputs. We typically have 
more than one SSP for individual products and services due to the stratification of those products and services by customers


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39 and circumstances. In these in stances, we may use information such as the size of the customer and geographic region in 
determining the SSP.  
Due to the various benefits from and the nature of our SA program, judgment is required to assess the pattern of delivery, 
including the exercis e pattern of certain benefits across our portfolio of customers.  
Our products are generally sold with a right of return, we may provide other credits or incentives, and in certain instances 
we estimate customer usage of our products and services, which ar e accounted for as variable consideration when 
determining the amount of revenue to recognize. Returns and credits are estimated at contract inception and updated at 
the end of each reporting period if additional information becomes available. Changes to o ur estimated variable 
consideration were not material for the periods presented.  
Impairment of Investment Securities  
We review debt investments quarterly for credit losses and impairment. If the cost of an investment exceeds its fair value, 
we evaluate, among other factors, general market conditions, credit quality of debt instrument issuers, and the extent to 
which the fair value is less than cost. This determination requires significant judgment. In making this judgment, we employ 
a systematic methodolo gy that considers available quantitative and qualitative evidence in evaluating potential impairment 
of our investments. In addition, we consider specific adverse conditions related to the financial health of, and business 
outlook for, the investee. If we have plans to sell the security or it is more likely than not that we will be required to sell the 
security before recovery, then a decline in fair value below cost is recorded as an impairment charge in other income 
(expense), net and a new cost basis in the investment is established. If market, industry, and/or investee conditions 
deteriorate, we may incur future impairments.  
Equity investments without readily determinable fair values are written down to fair value if a qualitative assessment 
indicates t hat the investment is impaired and the fair value of the investment is less than carrying value. We perform a 
qualitative assessment on a periodic basis. We are required to estimate the fair value of the investment to determine the 
amount of the impairment  loss. Once an investment is determined to be impaired, an impairment charge is recorded in other 
income (expense), net.  
Goodwill


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income (expense), net.  
Goodwill  
We allocate goodwill to reporting units based on the reporting unit expected to benefit from the business combination. We 
evaluate our reporting units on an annual basis and, if necessary, reassign goodwill using a relative fair value allocation 
approach. Goodwill is tested for impairment at the reporting unit level (operating segment or one level below an operating 
segment) on  an annual basis (May 1) and between annual tests if an event occurs or circumstances change that would 
more likely than not reduce the fair value of a reporting unit below its carrying value. These events or circumstances could 
include a significant chang e in the business climate, legal factors, operating performance indicators, competition, or sale or 
disposition of a significant portion of a reporting unit.  
Application of the goodwill impairment test requires judgment, including the identification of re porting units, assignment of 
assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each 
reporting unit. The fair value of each reporting unit is estimated primarily through the use of a  discounted cash flow 
methodology. This analysis requires significant judgments, including estimation of future cash flows, which is dependent on 
internal forecasts, estimation of the long -term rate of growth for our business, estimation of the useful life  over which cash 
flows will occur, and determination of our weighted average cost of capital.  
The estimates used to calculate the fair value of a reporting unit change from year to year based on operating results, 
market conditions, and other factors. Cha nges in these estimates and assumptions could materially affect the determination 
of fair value and goodwill impairment for each reporting unit.  
Research and Development Costs  
Costs incurred internally in researching and developing a computer software product are charged to expense until 
technological feasibility has been established for the product. Once technological feasibility is established, software costs  
are capitalized u ntil the product is available for general release to customers. Judgment is required in determining when 
technological feasibility of a product is established. We have determined that technological feasibility for our software 
products is reached after all  high-risk development issues have been resolved through coding and testing. Generally, this


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40 occurs shortly before the products are released to production. The amortization of these costs is included in cost of revenue  
over the estimated life of the produc ts.  
Legal and Other Contingencies    
The outcomes of legal proceedings and claims brought against us are subject to significant uncertainty. An estimated loss 
from a loss contingency such as a legal proceeding or claim is accrued by a charge to income if it is probable that an asset 
has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. In determining 
whether a loss should be accrued we evaluate, among other factors, the degree of probability of an unfavo rable outcome 
and the ability to make a reasonable estimate of the amount of loss. Changes in these factors could materially impact our 
consolidated financial statements.  
Income Taxes  
The objectives of accounting for income taxes are to recognize the amo unt of taxes payable or refundable for the current 
year, and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an 
entity’s financial statements or tax returns. We recognize the tax benefit from an un certain tax position only if it is more likely 
than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of t he 
position. The tax benefits recognized in the financial statements from such a pos ition are measured based on the largest 
benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Accounting literature also provide s 
guidance on derecognition of income tax assets and liabilities, classification of deferre d income tax assets and liabilities, 
accounting for interest and penalties associated with tax positions, and income tax disclosures. Judgment is required in 
assessing the future tax consequences of events that have been recognized in our consolidated fina ncial statements or tax 
returns. Variations in the actual outcome of these future tax consequences could materially impact our consolidated financial  
statements.  
  
Inventories  
Inventories are stated at average cost, subject to the lower of cost or net re alizable value. Cost includes materials, labor, 
and manufacturing overhead related to the purchase and production of inventories. Net realizable value is the estimated 
selling price less estimated costs of completion, disposal, and transportation. We regul arly review inventory quantities on


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hand, future purchase commitments with our suppliers, and the estimated utility of our inventory. These reviews include 
analysis of demand forecasts, product life cycle status, product development plans, current sales le vels, pricing strategy, 
and component cost trends. If our review indicates a reduction in utility below carrying value, we reduce our inventory to a 
new cost basis through a charge to cost of revenue.


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41 STATEMENT OF MANAGEMENT’S RESPONSIBILITY FOR FINANCI AL STATEMENTS  
Management is responsible for the preparation of the consolidated financial statements and related information that are 
presented in this report. The consolidated financial statements, which include amounts based on management’s estimates 
and judgments, have been prepared in conformity with accounting principles generally accepted in the United States of 
America.  
The Company designs and maintains accounting and internal control systems to provide reasonable assurance at 
reasonable cost that assets are safeguarded against loss from unauthorized use or disposition, and that the financial records 
are reliable for preparing consolidated financial statements and maintaining accountability for assets. These systems are 
augmented by written policies , an organizational structure providing division of responsibilities, careful selection and training 
of qualified personnel, and a program of internal audits.  
The Company engaged Deloitte  & Touche LLP, an independent registered public accounting firm, to audit and render an 
opinion on the consolidated financial statements and internal control over financial reporting in accordance with the 
standards of the Public Company Accounting Oversight Board (United States).  
The Board of Directors, through its Audit  Committee, consisting solely of independent directors of the Company, meets 
periodically with management, internal auditors, and our independent registered public accounting firm to ensure that each 
is meeting its responsibilities and to discuss matters c oncerning internal controls and financial reporting. Deloitte  & Touche 
LLP and the internal auditors each have full and free access to the Audit Committee.  
Satya Nadella  
Chief Executive Officer  
Amy E. Hood  
Executive Vice President and Chief Financial Officer  
Alice L. Jolla  
Corporate Vice President and Chief Accounting Officer


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42 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK  
RISKS  
We are exposed to economic risk from foreign exchange rates, interest rates, credit risk, and equity prices. We use 
derivatives instruments to manage these risks, however, they may still impact our consolidated financial statements.  
Foreign Currencies  
Certain forecasted transactions, assets, and liabilities are exposed to foreign currency risk. We monitor our foreign currency 
exposures daily to maximize the economic effectiveness of our foreign currency positions, including hedges. Principal 
currency expo sures include the Euro, Japanese yen, British pound, Canadian dollar, and Australian dollar.  
Interest Rate  
Securities held in our fixed -income portfolio are subject to different interest rate risks based on their maturities. We manage 
the average maturit y of the fixed -income portfolio to achieve economic returns that correlate to certain global fixed -income 
indices.  
Credit  
Our fixed -income portfolio is diversified and consists primarily of investment -grade securities. We manage credit exposures 
relative  to broad -based indices to facilitate portfolio diversification.  
Equity  
Securities held in our equity investments portfolio are subject to price risk.  
SENSITIVITY ANALYSIS  
The following table sets forth the potential loss in future earnings or fair val ues, including associated derivatives, resulting 
from hypothetical changes in relevant market rates or prices:  
  
(In millions)          
        
Risk Categories  Hypothetical Change  June  30, 
2023  Impact  
        
Foreign currency – Revenue  10% decrease in  foreign exchange rates  $   (8,122 ) Earnings  
Foreign currency – Investments  10% decrease in foreign exchange rates   (29) Fair Value  
Interest rate  100 basis point increase in U.S. treasury interest rates   (1,832 ) Fair Value  
Credit  100 basis point increase in credit spreads   (354) Fair Value  
Equity  10% decrease in equity market prices   (705) Earnings


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43 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA  
INCOME STATEMENTS  
  
(In millions, except per share amounts)          
        
Year Ended June  30, 2023  2022  2021  
        
Revenue:        
Product  $   64,699   $  72,732   $   71,074   
Service and other   147,216    125,538    97,014         
Total revenue   211,915    198,270    168,088         
Cost of revenue:        
Product   17,804    19,064    18,219   
Service and other   48,059    43,586    34,013         
Total cost of revenue   65,863    62,650    52,232         
Gross margin   146,052    135,620    115,856   
Research and development   27,195    24,512    20,716   
Sales and marketing   22,759    21,825    20,117   
General and administrative   7,575    5,900    5,107         
Operating income   88,523    83,383    69,916   
Other income, net   788   333   1,186         
Income before income taxes   89,311    83,716    71,102   
Provision for income taxes   16,950    10,978    9,831         
Net income  $ 72,361   $ 72,738   $ 61,271           
        
Earnings per share:        
Basic  $ 9.72  $ 9.70  $ 8.12  
Diluted  $ 9.68  $ 9.65  $ 8.05  
        
Weighted average shares outstanding:        
Basic   7,446    7,496    7,547   
Diluted   7,472    7,540    7,608     
Refer to accompanying notes.


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44 COMPREHENSIVE INCOME STATEMENTS  
  
(In millions)          
        
Year Ended June  30, 2023  2022  2021  
        
Net income  $  72,361   $  72,738   $  61,271           
        
Other comprehensive income (loss), net of tax:        
Net change related to derivatives   (14)  6   19  
Net change related to investments   (1,444 )  (5,360 )  (2,266 ) 
Translation adjustments and other   (207)  (1,146 )  873        
Other comprehensive loss   (1,665 )  (6,500 )  (1,374 )       
Comprehensive income  $ 70,696   $ 66,238   $ 59,897           
Refer to accompanying notes.


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45 BALANCE SHEETS  
  
(In millions)        
      
June  30, 2023  2022  
      
Assets      
Current assets:      
Cash and cash equivalents  $ 34,704   $ 13,931   
Short -term investments   76,558    90,826       
Total cash, cash equivalents, and short -term investments    111,262     104,757   
Accounts receivable, net of allowance for doubtful accounts of $650  and $633   48,688    44,261   
Inventories   2,500    3,742   
Other current assets   21,807    16,924       
Total current assets   184,257    169,684   
Property and equipment, net of accumulated depreciation of $68,251  and $59,660   95,641    74,398   
Operating lease right -of-use assets   14,346    13,148   
Equity investments   9,879    6,891   
Goodwill   67,886    67,524   
Intangible assets, net   9,366    11,298   
Other long -term assets   30,601    21,897       
Total assets  $  411,976   $   364,840         
Liabilities and stockholders’ equity      
Current liabilities:      
Accounts payable  $ 18,095   $ 19,000   
Current portion of long -term debt   5,247    2,749   
Accrued compensation   11,009    10,661   
Short -term income taxes   4,152    4,067   
Short -term unearned revenue   50,901    45,538   
Other current liabilities   14,745    13,067       
Total current liabilities   104,149    95,082   
Long -term debt   41,990    47,032   
Long -term income taxes   25,560    26,069   
Long -term unearned revenue   2,912    2,870   
Deferred income taxes   433   230  
Operating lease liabilities   12,728    11,489


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Operating lease liabilities   12,728    11,489   
Other long -term liabilities   17,981    15,526       
Total liabilities   205,753    198,298       
Commitments and contingencies      
Stockholders’ equity:      
Common stock and paid -in capital – shares authorized 24,000; outstanding 7,432  
and 7,464   93,718    86,939   
Retained earnings   118,848    84,281   
Accumulated other comprehensive loss   (6,343 )  (4,678 )     
Total stockholders’ equity   206,223    166,542       
Total liabilities and stockholders’ equity  $ 411,976   $ 364,840         
Refer to accompanying notes.


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46 CASH FLOWS STATEMENTS  
  
(In millions)          
        
Year Ended June  30, 2023  2022  2021  
        
Operations        
Net income  $     72,361   $   72,738   $   61,271   
Adjustments to reconcile net income to net cash from operations:        
Depreciation, amortization, and other   13,861    14,460    11,686   
Stock -based compensation expense   9,611    7,502    6,118   
Net recognized losses (gains) on investments and derivatives   196   (409)  (1,249 ) 
Deferred income taxes   (6,059 )  (5,702 )  (150) 
Changes in operating assets and liabilities:        
Accounts receivable   (4,087 )  (6,834 )  (6,481 ) 
Inventories   1,242    (1,123 )  (737) 
Other current assets   (1,991 )  (709)  (932) 
Other long -term assets   (2,833 )  (2,805 )  (3,459 ) 
Accounts payable   (2,721 )  2,943    2,798   
Unearned revenue   5,535    5,109    4,633   
Income taxes   (358)  696   (2,309 ) 
Other current liabilities   2,272    2,344    4,149   
Other long -term liabilities   553   825   1,402         
Net cash from operations   87,582    89,035    76,740         
Financing        
Cash premium on debt exchange   0   0   (1,754 ) 
Repayments of debt   (2,750 )  (9,023 )  (3,750 ) 
Common stock issued   1,866    1,841    1,693   
Common stock repurchased   (22,245 )  (32,696 )  (27,385 ) 
Common stock cash dividends paid   (19,800 )  (18,135 )  (16,521 )


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Other, net   (1,006 )  (863)  (769)       
Net cash used in financing   (43,935 )  (58,876 )  (48,486 )       
Investing        
Additions to property and equipment   (28,107 )  (23,886 )  (20,622 ) 
Acquisition of companies, net of cash acquired, and purchases of 
intangible and other assets   (1,670 )  (22,038 )  (8,909 ) 
Purchases of investments   (37,651 )  (26,456 )  (62,924 ) 
Maturities of investments   33,510    16,451    51,792   
Sales of investments   14,354    28,443    14,008   
Other, net   (3,116 )  (2,825 )  (922)       
Net cash used in investing   (22,680 )  (30,311 )  (27,577 )       
Effect of foreign exchange rates on cash and cash equivalents   (194)  (141)  (29)       
Net change in cash and cash equivalents   20,773    (293)  648  
Cash and cash equivalents, beginning of period   13,931    14,224    13,576         
Cash and cash equivalents, end of period  $ 34,704   $ 13,931   $ 14,224           
Refer to accompanying notes.


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47 STOCKHOLDERS’ EQUITY STATEMENTS  
  
(In millions, except per share amounts)          
        
Year Ended June  30, 2023  2022  2021  
        
Common stock and paid -in capital        
Balance, beginning of period  $ 86,939   $ 83,111   $   80,552   
Common stock issued   1,866    1,841    1,963   
Common stock repurchased   (4,696 )  (5,688 )  (5,539 ) 
Stock -based compensation expense   9,611    7,502    6,118   
Other, net  (2)  173   17        
Balance, end of period   93,718    86,939    83,111         
Retained earnings        
Balance, beginning of period   84,281    57,055    34,566   
Net income   72,361    72,738    61,271   
Common stock cash dividends   (20,226 )  (18,552 )  (16,871 ) 
Common stock repurchased   (17,568 )  (26,960 )  (21,879 ) 
Cumulative effect of accounting changes   0   0   (32)       
Balance, end of period   118,848    84,281    57,055         
Accumulated other comprehensive income (loss)        
Balance,  beginning of period   (4,678 )  1,822    3,186   
Other comprehensive loss   (1,665 )  (6,500 )  (1,374 ) 
Cumulative effect of accounting changes   0   0   10        
Balance, end of period   (6,343 )  (4,678 )  1,822         
Total stockholders’ equity  $   206,223   $   166,542   $   141,988           
        
Cash dividends declared per common share  $ 2.72  $ 2.48  $ 2.24    
Refer to accompanying notes.


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48 NOTES TO FINANCIAL STATEMENTS  
NOTE 1 — ACCOUNTING POLICIES  
Accounting Principles  
Our consolidated financial statements and accompanying notes are prepared in accordance with accounting principles 
generally accepted in the United States of America (“GAAP”).  
We have recast certain prior period amounts to conform to the current period pr esentation. The recast of these prior period 
amounts had no impact on our consolidated balance sheets, consolidated income statements, or consolidated cash flows 
statements.  
Principles of Consolidation  
The consolidated financial statements include the ac counts of Microsoft Corporation and its subsidiaries. Intercompany 
transactions and balances have been eliminated.  
Estimates and Assumptions  
Preparing financial statements requires management to make estimates and assumptions that affect the reported amo unts 
of assets, liabilities, revenue, and expenses. Examples of estimates and assumptions include: for revenue recognition, 
determining the nature and timing of satisfaction of performance obligations, and determining the standalone selling price 
(“SSP”) o f performance obligations, variable consideration, and other obligations such as product returns and refunds; loss 
contingencies; product warranties; the fair value of and/or potential impairment of goodwill and intangible assets for our 
reporting units; p roduct life cycles; useful lives of our tangible and intangible assets; allowances for doubtful accounts; the 
market value of, and demand for, our inventory; stock -based compensation forfeiture rates; when technological feasibility 
is achieved for our prod ucts; the potential outcome of uncertain tax positions that have been recognized in our consolidated 
financial statements or tax returns; and determining the timing and amount of impairments for investments. Actual results 
and outcomes may differ from mana gement’s estimates and assumptions due to risks and uncertainties.  
In July 2022, we completed an assessment of the useful lives of our server and network equipment. Due to investments in 
software that increased efficiencies in how we operate our server an d network equipment, as well as advances in 
technology, we determined we should increase the estimated useful lives of both server and network equipment from four 
years to six years. This change in accounting estimate was effective beginning fiscal year 20 23. Based on the carrying 
amount of server and network equipment included in property and equipment, net as of June  30, 2022, the effect of this


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change in estimate for fiscal year 2023 was an increase in operating income of $3.7  billion and net income of $ 3.0 billion, 
or $0.40 per both basic and diluted share.  
Foreign Currencies  
Assets and liabilities recorded in foreign currencies are translated at the exchange rate on the balance sheet date. Revenue 
and expenses are translated at average rates of exchan ge prevailing during the year. Translation adjustments resulting 
from this process are recorded to other comprehensive income.  
Revenue  
Product Revenue and Service and Other Revenue  
Product revenue includes sales from operating systems, cross -device productivity and collaboration applications, server 
applications, business solution applications, desktop and server management tools, software development tools, video 
games, and hardware  such as PCs, tablets, gaming and entertainment consoles, other intelligent devices, and related 
accessories.  
  
Service and other revenue includes sales from cloud -based solutions that provide customers with software, services, 
platforms, and content such  as Office 365, Azure, Dynamics 365, and Xbox; solution support; and consulting services. 
Service and other revenue also includes sales from online advertising and LinkedIn.


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49 Revenue Recognition  
Revenue is recognized upon transfer of control of promised p roducts or services to customers in an amount that reflects 
the consideration we expect to receive in exchange for those products or services. We enter into contracts that can include 
various combinations of products and services, which are generally capab le of being distinct and accounted for as separate 
performance obligations. Revenue is recognized net of allowances for returns and any taxes collected from customers, 
which are subsequently remitted to governmental authorities.  
Nature of Products and Services  
Licenses for on -premises software provide the customer with a right to use the software as it exists when made available 
to the customer. Customers may purchase perpetual licenses or subscribe to licenses, which provide cus tomers with the 
same functionality and differ mainly in the duration over which the customer benefits from the software. Revenue from 
distinct on -premises licenses is recognized upfront at the point in time when the software is made available to the custom er. 
In cases where we allocate revenue to software updates, primarily because the updates are provided at no additional 
charge, revenue is recognized as the updates are provided, which is generally ratably over the estimated life of the related 
device or l icense.  
Certain volume licensing programs, including Enterprise Agreements, include on -premises licenses combined with Software 
Assurance (“SA”). SA conveys rights to new software and upgrades released over the contract period and provides support, 
tools,  and training to help customers deploy and use products more efficiently. On -premises licenses are considered distinct 
performance obligations when sold with SA. Revenue allocated to SA is generally recognized ratably over the contract 
period as customers simultaneously consume and receive benefits, given that SA comprises distinct performance 
obligations that are satisfied over time.  
Cloud services, which allow customers to use hosted software over the contract period without taking possession of the 
software, are provided on either a subscription or consumption basis. Revenue related to cloud services provided on a 
subscription basis is recognized ratably over the contract period. Revenue related to cloud services provided on a 
consumption basis, such as the amount of storage used in a period, is recognized based on the customer utilization of such 
resources. When cloud services require a significant level of integration and interdependency with software and the


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individual components are not considered dis tinct, all revenue is recognized over the period in which the cloud services are 
provided.  
Revenue from search advertising is recognized when the advertisement appears in the search results or when the action 
necessary to earn the revenue has been complet ed. Revenue from consulting services is recognized as services are 
provided.  
Our hardware is generally highly dependent on, and interrelated with, the underlying operating system and cannot function 
without the operating system. In these cases, the hardwa re and software license are accounted for as a single performance 
obligation and revenue is recognized at the point in time when ownership is transferred to resellers or directly to end 
customers through retail stores and online marketplaces.  
Refer to Not e 19 – Segment Information and Geographic Data for further information, including revenue by significant 
product and service offering.  
Significant Judgments  
Our contracts with customers often include promises to transfer multiple products and services to  a customer. Determining 
whether products and services are considered distinct performance obligations that should be accounted for separately 
versus together may require significant judgment. When a cloud -based service includes both on -premises software l icenses 
and cloud services, judgment is required to determine whether the software license is considered distinct and accounted 
for separately, or not distinct and accounted for together with the cloud service and recognized over time. Certain cloud 
servic es, primarily Office 365, depend on a significant level of integration, interdependency, and interrelation between the 
desktop applications and cloud services, and are accounted for together as one performance obligation. Revenue from 
Office 365 is recogni zed ratably over the period in which the cloud services are provided.  
Judgment is required to determine the SSP for each distinct performance obligation. We use a single amount to estimate 
SSP for items that are not sold separately, including on -premises licenses sold with SA or software updates provided at no 
additional charge. We use a range of amounts to estimate SSP when we sell each of the products and services separately 
and need to determine whether there is a discount to be allocated based on the r elative SSP of the various products and 
services.


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50 In instances where SSP is not directly observable, such as when we do not sell the product or service separately, we 
determine the SSP using information that may include market conditions and other observa ble inputs. We typically have 
more than one SSP for individual products and services due to the stratification of those products and services by customers 
and circumstances. In these instances, we may use information such as the size of the customer and ge ographic region in 
determining the SSP.  
Due to the various benefits from and the nature of our SA program, judgment is required to assess the pattern of delivery, 
including the exercise pattern of certain benefits across our portfolio of customers.  
Our p roducts are generally sold with a right of return, we may provide other credits or incentives, and in certain instances 
we estimate customer usage of our products and services, which are accounted for as variable consideration when 
determining the amount o f revenue to recognize. Returns and credits are estimated at contract inception and updated at 
the end of each reporting period if additional information becomes available. Changes to our estimated variable 
consideration were not material for the periods p resented.  
Contract Balances and Other Receivables  
Timing of revenue recognition may differ from the timing of invoicing to customers. We record a receivable when revenue 
is recognized prior to invoicing, or unearned revenue when revenue is recognized sub sequent to invoicing. For multi -year 
agreements, we generally invoice customers annually at the beginning of each annual coverage period. We record a 
receivable related to revenue recognized for multi -year on -premises licenses as we have an unconditional r ight to invoice 
and receive payment in the future related to those licenses.  
Unearned revenue comprises mainly unearned revenue related to volume licensing programs, which may include SA and 
cloud services. Unearned revenue is generally invoiced annually at the beginning of each contract period for multi -year 
agreements and recognized ratably over the coverage period. Unearned revenue also includes payments for consulting 
services to be performed in the future, LinkedIn subscriptions, Office 365 subscripti ons, Xbox subscriptions, Windows post -
delivery support, Dynamics business solutions, and other offerings for which we have been paid in advance and earn the 
revenue when we transfer control of the product or service.


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revenue when we transfer control of the product or service.  
Refer to Note 13 – Unearned Revenue fo r further information, including unearned revenue by segment and changes in 
unearned revenue during the period.  
Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within 30 
to 60 days. In instance s where the timing of revenue recognition differs from the timing of invoicing, we have determined 
our contracts generally do not include a significant financing component. The primary purpose of our invoicing terms is to 
provide customers with simplified and predictable ways of purchasing our products and services, not to receive financing 
from our customers or to provide customers with financing. Examples include invoicing at the beginning of a subscription 
term with revenue recognized ratably over the co ntract period, and multi -year on -premises licenses that are invoiced 
annually with revenue recognized upfront.  
  
As of June  30, 2023 and 2022, long -term accounts receivable, net of allowance for doubtful accounts, was $4.5  billion and 
$3.8 billion, respec tively, and is included in other long -term assets in our consolidated balance sheets.  
The allowance for doubtful accounts reflects our best estimate of probable losses inherent in the accounts receivable 
balance. We determine the allowance based on known troubled accounts, historical experience, and other currently 
available evidence.  
Activity in the allowance for doubtful accounts was as follows:  
  
(In millions)          
        
Year Ended June  30, 2023  2022  2021  
        
Balance, beginning of period  $   710  $   798  $   816  
Charged to costs and other   258   157   234  
Write -offs    (252)    (245)    (252)       
Balance, end of period  $ 716  $ 710  $ 798


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51 Allowance for doubtful accounts included in our consolidated balance sheets:  
  
(In millions)          
        
June  30, 2023  2022  2021  
        
Accounts receivable, net of allowance for doubtful accounts  $ 650  $ 633  $ 751  
Other long -term assets       66       77       47        
Total  $ 716  $ 710  $ 798          
As of June  30, 2023 and 2022, other receivables related to activities to facilitate the purchase of server components were 
$9.2 billion and $6.1  billion, respectively, and are included in other current assets in our consolidated balance sheets.  
We record financing receivables when we offer certain of our customers the option to acquire our software products and 
services offerings through a financing program in a limited number of countries. As of June  30, 2023 and 2022, our financing 
receivables, net were $5.3 billion and $4.1  billion, respectively, for short -term and long -term financing receivables, which 
are included in other current assets and other long -term assets in our consolidated balance sheets. We record an allowance 
to cover expected losses based  on troubled accounts, historical experience, and other currently available evidence.  
Assets Recognized from Costs to Obtain a Contract with a Customer  
We recognize an asset for the incremental costs of obtaining a contract with a customer if we expect t he benefit of those 
costs to be longer than one year. We have determined that certain sales incentive programs meet the requirements to be 
capitalized. Total capitalized costs to obtain a contract were immaterial during the periods presented and are includ ed in 
other current and long -term assets in our consolidated balance sheets.  
We apply a practical expedient to expense costs as incurred for costs to obtain a contract with a customer when the 
amortization period would have been one year or less. These co sts include our internal sales organization compensation 
program and certain partner sales incentive programs as we have determined annual compensation is commensurate with 
annual sales activities.  
Cost of Revenue  
Cost of revenue includes: manufacturing and distribution costs for products sold and programs licensed; operating costs


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related to product support service centers and product distribution centers; costs incurred to include software on PCs sold 
by original equipment manufacturers (“OEM”), to driv e traffic to our websites, and to acquire online advertising space; costs 
incurred to support and maintain cloud -based and other online products and services, including datacenter costs and 
royalties; warranty costs; inventory valuation adjustments; costs associated with the delivery of consulting services; and the 
amortization of capitalized software development costs. Capitalized software development costs are amortized over the 
estimated lives of the products.  
Product Warranty  
We provide for the estima ted costs of fulfilling our obligations under hardware and software warranties at the time the related 
revenue is recognized. For hardware warranties, we estimate the costs based on historical and projected product failure 
rates, historical and projected r epair costs, and knowledge of specific product failures (if any). The specific hardware 
warranty terms and conditions vary depending upon the product sold and the country in which we do business, but generally 
include parts and labor over a period generall y ranging from 90  days to three years. For software warranties, we estimate 
the costs to provide bug fixes, such as security patches, over the estimated life of the software. We regularly reevaluate ou r 
estimates to assess the adequacy of the recorded warr anty liabilities and adjust the amounts as necessary.  
Research and Development  
Research and development expenses include payroll, employee benefits, stock -based compensation expense, and other 
headcount -related expenses associated with product developmen t. Research and development expenses also include third -
party development and programming costs and the amortization of purchased software code and services content. Such 
costs related to software development are included in research and development expens e until the point that technological 
feasibility is reached, which for our software products, is generally shortly before the products are released to production.


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52 Once technological feasibility is reached, such costs are capitalized and amortized to cost o f revenue over the estimated 
lives of the products.  
Sales and Marketing  
Sales and marketing expenses include payroll, employee benefits, stock -based compensation expense, and other 
headcount -related expenses associated with sales and marketing personnel, and the costs of advertising, promotions, trade 
shows, seminars, and othe r programs. Advertising costs are expensed as incurred. Advertising expense was $904  million, 
$1.5 billion, and $1.5  billion in fiscal years 2023, 2022, and 2021, respectively.  
Stock -Based Compensation  
Compensation cost for stock awards, which include re stricted stock units (“RSUs”) and performance stock units (“PSUs”), 
is measured at the fair value on the grant date and recognized as expense, net of estimated forfeitures, over the related 
service or performance period. The fair value of stock awards is b ased on the quoted price of our common stock on the 
grant date less the present value of expected dividends not received during the vesting period. We measure the fair value 
of PSUs using a Monte Carlo valuation model. Compensation cost for RSUs is recogni zed using the straight -line method 
and for PSUs is recognized using the accelerated method.  
Compensation expense for the employee stock purchase plan (“ESPP”) is measured as the discount the employee is 
entitled to upon purchase and is recognized in the p eriod of purchase.  
Employee Severance  
On January  18, 2023, we announced a decision to reduce our overall workforce by approximately 10,000 jobs through the 
third quarter of fiscal year 2023. During the three months ended December  31, 2022, we recorded $8 00 million of employee 
severance expenses related to these job eliminations as part of an ongoing employee benefit plan. These employee 
severance expenses were incurred as part of a corporate program, and were included in general and administrative 
expense s in our consolidated income statements and allocated to our segments based on relative gross margin. Refer to 
Note 19 – Segment Information and Geographic Data for further information.  
  
Income Taxes


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Income Taxes  
Income tax expense includes U.S. and international in come taxes, and interest and penalties on uncertain tax positions. 
Certain income and expenses are not reported in tax returns and financial statements in the same year. The tax effect of 
such temporary differences is reported as deferred income taxes. Def erred tax assets are reported net of a valuation 
allowance when it is more likely than not that a tax benefit will not be realized. All deferred income taxes are classified a s 
long-term in our consolidated balance sheets.  
Financial Instruments  
Investment s  
We consider all highly liquid interest -earning investments with a maturity of three months or less at the date of purchase to 
be cash equivalents. The fair values of these investments approximate their carrying values. In general, investments with 
original maturities of greater than three months and remaining maturities of less than one year are classified as short -term 
investments. Investments with maturities beyond one year may be classified as short -term based on their highly liquid nature 
and because  such marketable securities represent the investment of cash that is available for current operations.  
Debt investments are classified as available -for-sale and realized gains and losses are recorded using the specific 
identification method. Changes in fa ir value, excluding credit losses and impairments, are recorded in other comprehensive 
income. Fair value is calculated based on publicly available market information or other estimates determined by 
management. If the cost of an investment exceeds its fai r value, we evaluate, among other factors, general market 
conditions, credit quality of debt instrument issuers, and the extent to which the fair value is less than cost. To determine  
credit losses, we employ a systematic methodology that considers availab le quantitative and qualitative evidence. In 
addition, we consider specific adverse conditions related to the financial health of, and business outlook for, the investee.  If 
we have plans to sell the security or it is more likely than not that we will be r equired to sell the security before recovery, 
then a decline in fair value below cost is recorded as an impairment charge in other income (expense), net and a new cost


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53 basis in the investment is established. If market, industry, and/or investee conditions deteriorate, we may incur future 
impairments.  
Equity investments with readily determinable fair values are measured at fair value. Equity investments without readily 
determinable fair values are measured using the equity method or measured at cost with ad justments for observable 
changes in price or impairments (referred to as the measurement alternative). We perform a qualitative assessment on a 
periodic basis and recognize an impairment if there are sufficient indicators that the fair value of the investm ent is less than 
carrying value. Changes in value are recorded in other income (expense), net.  
Derivatives  
Derivative instruments are recognized as either assets or liabilities and measured at fair value. The accounting for changes 
in the fair value of a  derivative depends on the intended use of the derivative and the resulting designation.  
For derivative instruments designated as fair value hedges, gains and losses are recognized in other income (expense), 
net with offsetting gains and losses on the hed ged items. Gains and losses representing hedge components excluded from 
the assessment of effectiveness are recognized in other income (expense), net.  
For derivative instruments designated as cash flow hedges, gains and losses are initially reported as a component of other 
comprehensive income and subsequently recognized in other income (expense), net with the corresponding hedged item. 
Gains and losses representing hedge components excluded from the assessment of effectiveness are recognized in other 
income (expense), net.  
For derivative instruments that are not designated as hedges, gains and losses from changes in fair values are primarily 
recognized in other income (expense), net.  
  
Fair Value Measurements  
We account for certain assets and liabilities at fair value. The hierarchy below lists three levels of fair value based on th e 
extent to which inputs used in measuring fair value are observable in the market.  We categorize each of our fair value 
measuremen ts in one of these three levels based on the lowest level input that is significant to the fair value measurement 
in its entirety. These levels are:  
• Level  1 – inputs are based upon unadjusted quoted prices for identical instruments in active markets. Ou r 
Level  1 investments include U.S. government securities, common and preferred stock, and mutual funds.  Our


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Level  1 derivative assets and liabilities include those actively traded on exchanges.   
• Level  2 – inputs are based upon quoted prices for similar i nstruments in active markets, quoted prices for 
identical or similar instruments in markets that are not active, and model -based valuation techniques (e.g. the 
Black -Scholes model) for which all significant inputs are observable in the market or can be cor roborated by 
observable market data for substantially the full term of the assets or liabilities. Where applicable, these models 
project future cash flows and discount the future amounts to a present value using market -based observable 
inputs including int erest rate curves, credit spreads, foreign exchange rates, and forward and spot prices for 
currencies. Our Level  2 investments include commercial paper, certificates of deposit, U.S. agency securities, 
foreign government bonds, mortgage - and asset -backed s ecurities, corporate notes and bonds, and municipal 
securities. Our Level  2 derivative assets and liabilities include certain cleared swap contracts and over -the-
counter forward, option, and swap contracts.  
• Level  3 – inputs are generally unobservable an d typically reflect management’s estimates of assumptions that 
market participants would use in pricing the asset or liability. The fair values are therefore determined using 
model -based techniques, including option pricing models and discounted cash flow models. Our Level  3 assets 
and liabilities include investments in corporate notes and bonds, municipal securities, and goodwill and 
intangible assets, when they are recorded at fair value due to an impairment charge.  Unobservable inputs used 
in the models are significant to the fair values of the assets and liabilities.  
We measure equity investments without readily determinable fair values on a nonrecurring basis. The fair values of these 
investments are determined based on valuation techniques using the b est information available, and may include quoted 
market prices, market comparables, and discounted cash flow projections.  
Our other current financial assets and current financial liabilities have fair values that approximate their carrying values.


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54 Inven tories  
Inventories are stated at average cost, subject to the lower of cost or net realizable value. Cost includes materials, labor,  
and manufacturing overhead related to the purchase and production of inventories. Net realizable value is the estimated 
selling pr ice less estimated costs of completion, disposal, and transportation. We regularly review inventory quantities on 
hand, future purchase commitments with our suppliers, and the estimated utility of our inventory. If our review indicates a 
reduction in utili ty below carrying value, we reduce our inventory to a new cost basis through a charge to cost of revenue.  
Property and Equipment  
Property and equipment is stated at cost less accumulated depreciation, and depreciated using the straight -line method 
over t he shorter of the estimated useful life of the asset or the lease term. The estimated useful lives of our property and 
equipment are generally as follows: computer software developed or acquired for internal use, three years; computer 
equipment, two to six  years; buildings and improvements, five to 15 years; leasehold improvements, three to 20 years; and 
furniture and equipment, one to 10 years. Land is not depreciated.  
Leases  
We determine if an arrangement is a lease at inception. Operating leases are in cluded in operating lease right -of-use 
(“ROU”) assets, other current liabilities, and operating lease liabilities in our consolidated balance sheets. Finance leases  
are included in property and equipment, other current liabilities, and other long -term liab ilities in our consolidated balance 
sheets.  
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation 
to make lease payments arising from the lease. Operating lease ROU assets and liabiliti es are recognized at 
commencement date based on the present value of lease payments over the lease term. As most of our leases do not 
provide an implicit rate, we generally use our incremental borrowing rate based on the estimated rate of interest for 
collateralized borrowing over a similar term of the lease payments at commencement date. The operating lease ROU asset 
also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or 
terminate the lease whe n it is reasonably certain that we will exercise that option. Lease expense for lease payments is


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recognized on a straight -line basis over the lease term.  
We have lease agreements with lease and non -lease components, which are generally accounted for sepa rately. For certain 
equipment leases, such as vehicles, we account for the lease and non -lease components as a single lease component. 
Additionally, for certain equipment leases, we apply a portfolio approach to effectively account for the operating lease ROU 
assets and liabilities.  
Goodwill  
Goodwill is tested for impairment at the reporting unit level (operating segment or one level below an operating segment) 
on an annual basis (May 1) and between annual tests if an event occurs or circumstances change that would more likely 
than not reduce the fair value of a reporting unit below its carrying value.  
Intangible Assets  
Our intangible assets are subject to amortization and are amortized using the straight -line method over their estimated 
period of benefit, ranging from one to 20 years. We evaluate the recoverability of intangible assets periodically by taking 
into account  events or circumstances that may warrant revised estimates of useful lives or that indicate the asset may be 
impaired.  
NOTE 2 — EARNINGS PER SHARE  
Basic earnings per share (“EPS”) is computed based on the weighted average number of shares of common stoc k 
outstanding during the period. Diluted EPS is computed based on the weighted average number of shares of common stock 
plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive 
potential co mmon shares include outstanding stock options and stock awards.


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55 The components of basic and diluted EPS were as follows:  
  
(In millions, except earnings per share)          
        
Year Ended June  30, 2023  2022  2021  
        
Net income available for common shareholders (A)  $  72,361   $  72,738   $  61,271           
        
Weighted average outstanding shares of common stock (B)   7,446    7,496    7,547   
Dilutive effect of stock -based awards   26   44   61        
Common stock and common stock equivalents (C)   7,472    7,540    7,608           
        
Earnings Per Share        
        
Basic (A/B)  $ 9.72  $ 9.70  $ 8.12  
Diluted (A/C)  $ 9.68  $ 9.65  $ 8.05    
Anti-dilutive stock -based awards excluded from the calculations of diluted EPS were immaterial during the periods 
presented.  
  
NOTE 3 — OTHER INCOME (EXPENSE), NET  
The components of other income (expense), net were as follows:  
  
(In millions)          
        
Year Ended June  30, 2023  2022  2021  
        
Interest and dividends income  $   2,994   $   2,094   $   2,131   
Interest expense   (1,968 )  (2,063 )  (2,346 ) 
Net recognized gains on investments   260   461   1,232   
Net gains (losses) on derivatives   (456)  (52)  17  
Net gains (losses) on foreign currency remeasurements   181   (75)  54  
Other, net   (223)  (32)  98        
Total  $ 788  $ 333  $ 1,186           
Net Recognized Gains (Losses) on Investments  
Net recognized gains (losses) on debt investments were as follows:  
  
(In millions)


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(In millions)          
        
Year Ended June  30, 2023  2022  2021  
        
Realized gains from sales of available -for-sale securities  $    36  $   162  $   105  
Realized losses from sales of available -for-sale securities   (124)  (138)  (40) 
Impairments and allowance for credit losses   (10)  (81)  (2)       
Total  $ (98) $ (57) $ 63          
Net recognized gains (losses) on equity investments were as follows:  
  
(In millions)          
        
Year Ended June  30, 2023  2022  2021  
        
Net realized gains on investments sold  $    75  $    29  $    123   
Net unrealized gains on investments still held   303   509   1,057   
Impairments of investments   (20)  (20)  (11)       
Total  $ 358  $ 518  $ 1,169


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56 NOTE 4  — INVESTMENTS  
Investment Components  
The components of investments were as follows:  
  
(In millions)  Fair Value  
Level  Adjusted  
Cost  Basis  Unrealized  
Gains  Unrealized  
Losses  Recorded  
Basis  Cash  and 
Cash  
Equivalents  Short -term  
Investments  Equity  
Investments    
                  
June  30, 2023                  
                
Changes in Fair Value Recorded in 
Other  Comprehensive Income                
                  
Commercial paper   Level  2  $ 16,589   $ 0  $ 0  $ 16,589   $ 12,231   $ 4,358   $ 0  
Certificates of deposit   Level  2   2,701    0   0   2,701    2,657    44   0  
U.S. government securities   Level  1   65,237    2   (3,870 )  61,369    2,991    58,378    0  
U.S. agency securities   Level  2   2,703    0   0   2,703    894   1,809    0  
Foreign government bonds   Level  2   498   1   (24)  475   0   475   0  
Mortgage - and asset -
backed securities   Level  2   824   1   (39)  786   0   786   0  
Corporate notes and bonds   Level  2   10,809    8   (583)  10,234    0   10,234    0  
Corporate notes and bonds   Level  3   120   0       0   120   0   120   0  
Municipal securities   Level  2   285   1   (18)  268   7   261   0  
Municipal securities   Level  3   103   0   (16)  87   0   87   0


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Total debt investments    $   99,869   $   13  $ (4,550 ) $ 95,332   $ 18,780   $ 76,552   $ 0                    
                
Changes in Fair Value Recorded in 
Net Income                
                  
Equity investments  Level  1       $ 10,138   $ 7,446   $  0  $ 2,692   
Equity investments  Other         7,187    0   0   7,187           
Total equity investments          $ 17,325   $ 7,446   $ 0  $ 9,879                   
Cash          $ 8,478   $ 8,478   $ 0  $ 0  
Derivatives, net (a)          6   0   6   0          
Total          $  121,141   $  34,704   $  76,558   $  9,879                     
 
 (In millions)  Fair Value  
Level  Adjusted  
Cost  Basis  Unrealized  
Gains  Unrealized  
Losses  Recorded  
Basis  Cash  and 
Cash  
Equivalents  Short -term  
Investments  Equity  
Investments    
                  
June  30, 2022                  
                
Changes in Fair Value Recorded in 
Other  Comprehensive Income                
                  
Commercial paper   Level  2  $ 2,500   $ 0  $ 0  $ 2,500   $ 2,498   $ 2  $ 0  
Certificates of deposit   Level  2   2,071    0   0   2,071    2,032    39   0  
U.S. government securities   Level  1   79,696    29   (2,178 )  77,547    9   77,538    0  
U.S. agency securities   Level  2   419   0   (9)  410   0   410   0  
Foreign government bonds   Level  2   506   0   (24)  482   0   482   0


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Mortgage - and asset -
backed securities   Level  2   727   1   (30)  698   0   698   0  
Corporate notes and bonds   Level  2   11,661    4   (554)  11,111    0   11,111    0  
Corporate notes and bonds   Level  3   67   0       0   67   0   67   0  
Municipal securities   Level  2   368   19   (13)  374   0   374   0  
Municipal securities   Level  3   103   0   (6)  97   0   97   0                
Total debt investments    $   98,118   $   53  $ (2,814 ) $  95,357   $  4,539   $  90,818   $    0                    
                
Changes in Fair Value Recorded in 
Net Income                
                  
Equity investments  Level  1       $ 1,590   $ 1,134   $  0  $ 456  
Equity investments  Other         6,435    0   0   6,435           
Total equity investments          $ 8,025   $ 1,134   $ 0  $ 6,891                   
Cash          $ 8,258   $ 8,258   $ 0  $ 0  
Derivatives, net (a)          8   0   8   0          
Total          $  111,648   $  13,931   $  90,826   $  6,891                     
(a) Refer to Note 5 – Derivatives for further information on the fair value of our derivative instruments.


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57 Equity investments presented as “Other” in the tables above include investments without readily determinable fair values 
measured using the equity method or measured at cost with adjustments for observable changes in price or impairments, 
and investments m easured at fair value using net asset value as a practical expedient which are not categorized in the fair 
value hierarchy. As of June  30, 2023 and 2022, equity investments without readily determinable fair values measured at 
cost with adjustments for obse rvable changes in price or impairments were $4.2  billion and $3.8  billion, respectively.  
  
Unrealized Losses on Debt Investments  
Debt investments with continuous unrealized losses for less than 12 months and 12 months or greater and their related fair 
values were as follows:  
  
  Less than 12 Months  12 Months or Greater    Total  
Unrealized  
Losses          
(In millions)  Fair Value  Unrealized  
Losses  Fair Value  Unrealized  
Losses  Total  
Fair Value    
              
June  30, 2023              
              
U.S. government and agency securities  $ 7,950   $ (336 ) $ 45,273   $ (3,534  ) $ 53,223    $ (3,870 ) 
Foreign government bonds   77   (5 )  391   (19 )  468   (24) 
Mortgage - and asset -backed securities   257   (5 )  412   (34 )  669   (39) 
Corporate notes and bonds   2,326    (49 )  7,336    (534 )  9,662    (583) 
Municipal securities   111   (3 )  186   (31 )  297   (34)             
Total  $  10,721   $   (398 ) $  53,598   $   (4,152  ) $  64,319    $ (4,550 )               
          
  Less than 12 Months  12 Months or Greater    Total  
Unrealized  
Losses          
(In millions)  Fair Value  Unrealized  
Losses  Fair Value  Unrealized  
Losses  Total


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Losses  Fair Value  Unrealized  
Losses  Total  
Fair Value    
              
June  30, 2022              
              
U.S. government and agency securities  $ 59,092   $ (1,835  ) $ 2,210   $ (352 ) $ 61,302    $ (2,187 ) 
Foreign government bonds   418   (18 )  27   (6 )  445   (24) 
Mortgage - and asset -backed securities   510   (26 )  41   (4 )  551   (30) 
Corporate notes and bonds   9,443    (477 )  786   (77 )  10,229    (554) 
Municipal securities   178   (12 )  74   (7 )  252   (19)             
Total  $  69,641   $   (2,368  ) $  3,138   $   (446 ) $  72,779    $ (2,814 )               
Unrealized losses from fixed -income securities are primarily attributable to changes in interest rates. Management does not 
believe any remaining unrealized losses represent impairments based on our evaluation of available evidence.  
Debt Investment Maturi ties  
  
(In millions)  Adjusted  
Cost  Basis  Estimated  
Fair Value    
      
June  30, 2023      
      
Due in one year or less  $ 38,182   $ 38,048   
Due after one year through five years   47,127    44,490   
Due after five years through 10 years   13,262    11,628   
Due after 10 years   1,298    1,166       
Total  $   99,869   $   95,332         
  
NOTE 5 — DERIVATIVES  
We use derivative instruments to manage risks related to foreign currencies, interest rates, equity prices, and credit; to 
enhance investment returns; and to facilitate portfolio diversification. Our objectives for holding derivatives include reduc ing, 
eliminating, and efficiently managing the economic impact of these exposures as effectively as possible. Our derivative


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58 Foreign Currencies  
Certain forecasted tr ansactions, assets, and liabilities are exposed to foreign currency risk. We monitor our foreign currency 
exposures daily to maximize the economic effectiveness of our foreign currency hedge positions.  
Foreign currency risks related to certain non -U.S. do llar-denominated investments are hedged using foreign exchange 
forward contracts that are designated as fair value hedging instruments. Foreign currency risks related to certain Euro -
denominated debt are hedged using foreign exchange forward contracts that  are designated as cash flow hedging 
instruments.  
Certain options and forwards not designated as hedging instruments are also used to manage the variability in foreign 
exchange rates on certain balance sheet amounts and to manage other foreign currency ex posures.  
Interest Rate  
Interest rate risks related to certain fixed -rate debt are hedged using interest rate swaps that are designated as fair value 
hedging instruments to effectively convert the fixed interest rates to floating interest rates.  
Securities held in our fixed -income portfolio are subject to different interest rate risks based on their maturities. We manage 
the average maturity of our fixed -income portfolio to achieve economic returns that correlate to certain broad -based fixed -
incom e indices using option, futures, and swap contracts. These contracts are not designated as hedging instruments and 
are included in “Other contracts” in the tables below.  
Equity  
Securities held in our equity investments portfolio are subject to market pri ce risk.  At times, we may hold options, futures, 
and swap contracts. These contracts are not designated as hedging instruments.  
Credit  
Our fixed -income portfolio is diversified and consists primarily of investment -grade securities. We use credit default swap 
contracts to manage credit exposures relative to broad -based indices and to facilitate portfolio diversification. These 
contracts are not designated as hedging instruments and are included in “Other contracts” in the tables below.  
Credit -Risk -Related  Contingent Features  
Certain of our counterparty agreements for derivative instruments contain provisions that require our issued and outstanding 
long-term unsecured debt to maintain an investment grade credit rating and require us to maintain minimum liq uidity of 
$1.0 billion. To the extent we fail to meet these requirements, we will be required to post collateral, similar to the standard


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convention related to over -the-counter derivatives. As of June  30, 2023, our long -term unsecured debt rating was AAA, and 
cash investments were in excess of $1.0  billion. As a result, no collateral was required to be posted.  
  
The following table presents the notional amounts of our outstanding derivative instruments measured in U.S. dollar 
equivalents:  
  
(In millions)  June  30, 
2023  June  30, 
2022    
      
Designated as Hedging Instruments      
      
Foreign exchange contracts purchased  $ 1,492   $ 635  
Interest rate contracts purchased   1,078    1,139   
      
Not Designated as Hedging Instruments      
      
Foreign exchange contracts purchased   7,874    10,322   
Foreign exchange contracts sold     25,159      21,606   
Equity contracts purchased   3,867    1,131   
Equity contracts sold   2,154    0  
Other contracts purchased   1,224    1,642   
Other contracts sold   581   544


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59 Fair Values of Derivative Instruments  
The following table presents our derivative instruments:  
  
(In millions)  Derivative  
Assets  Derivative  
Liabilities  Derivative  
Assets  Derivative  
Liabilities    
      
  June  30, 
2023  June  30, 
2022  
          
Designated as Hedging Instruments          
          
Foreign exchange contracts  $ 34  $ (67) $ 0  $ (77) 
Interest rate contracts   16   0   3   0  
          
Not Designated as Hedging Instruments          
          
Foreign exchange contracts   249   (332)  333   (362) 
Equity contracts   165   (400)  5   (95) 
Other contracts   5   (6)  15   (17)         
Gross amounts of derivatives   469   (805)  356   (551) 
Gross amounts of derivatives offset in the balance sheet   (202)  206   (130)  133  
Cash collateral received   0   (125)  0   (75)         
Net amounts of derivatives  $ 267  $ (724) $ 226  $ (493)           
          
Reported as          
          
Short -term investments  $ 6  $ 0  $ 8  $ 0  
Other current assets   245   0   218   0  
Other long -term assets   16   0   0   0  
Other current liabilities   0   (341)  0   (298) 
Other long -term liabilities   0   (383)  0   (195)         
Total  $   267  $   (724) $   226  $   (493)           
Gross derivative assets and liabilities subject to legally enforceable master netting agreements for which we have elected 
to offset were $442  million and $804  million, respectively, as of June  30, 2023, and $343  million and $550  million, 
respectively, as of June  30, 2022.  
  
The following table presents the fair value of our derivatives instruments on a gross basis:


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(In millions)  Level  1 Level  2 Level  3 Total    
          
June  30, 2023          
          
Derivative assets  $      0  $ 462  $      7  $ 469  
Derivative liabilities   0   (805)  0   (805) 
          
June  30, 2022          
          
Derivative assets   1      349   6      356  
Derivative liabilities   0   (551)  0   (551)   
Gains (losses) on derivative instruments recognized in other income (expense), net were as follows:  
  
(In millions)    
        
Year Ended June  30, 2023  2022  2021  
        
Designated as Fair Value Hedging Instruments        
        
Foreign exchange contracts        
Derivatives  $ 0  $ 49  $ 193  
Hedged items   0   (50)  (188) 
Excluded from effectiveness assessment   0   4   30  
Interest rate contracts        
Derivatives   (65)  (92)  (37) 
Hedged items   38   108   53


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60 (In millions)  
Designated as Cash Flow Hedging Instruments        
        
Foreign exchange contracts        
Amount reclassified  from accumulated other comprehensive income     61   (79)  17  
        
Not Designated as Hedging Instruments        
        
Foreign exchange contracts   (73)  383     27  
Equity contracts   (420)    13   (6) 
Other contracts   (41)  (85)  15    
Gains (losses), net of tax, on derivative instruments recognized in our consolidated comprehensive income statements were 
as follows:  
  
(In millions)          
        
Year Ended June  30, 2023  2022  2021  
        
Designated as Cash Flow Hedging Instruments        
        
Foreign exchange contracts        
Included in effectiveness assessment  $    34   $   (57) $    34    
NOTE 6  — INVENTORIES  
The components of inventories were as follows:  
  
(In millions)    
      
June  30, 2023  2022  
      
Raw materials  $ 709  $ 1,144   
Work in process   23   82  
Finished goods   1,768    2,516       
Total  $     2,500   $     3,742         
  
NOTE 7 — PROPERTY AND EQUIPMENT  
The components of property and equipment were as follows:  
  
(In millions)    
      
June  30, 2023  2022  
      
Land  $ 5,683   $ 4,734   
Buildings and improvements    68,465     55,014   
Leasehold improvements   8,537    7,819   
Computer equipment and software   74,961    60,631   
Furniture and equipment   6,246    5,860       
Total, at cost    163,892    134,058   
Accumulated depreciation   (68,251 )  (59,660 )     
Total, net  $ 95,641   $ 74,398


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During fiscal years 2023, 2022, and 2021, depreciation expense was $11.0  billion, $12.6  billion, and $9.3  billion, 
respectively. Depreciation expense declined in fiscal year 2023 due to the change in estimated useful lives of our server 
and network equipme nt.  
As of June  30, 2023, we have committed $13.5  billion for the construction of new buildings, building improvements, and 
leasehold improvements, primarily related to datacenters.


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61 NOTE 8 — BUSINESS COMBINATIONS  
Nuance Communications, Inc.  
On March  4, 2022, we completed our acquisition of Nuance Communications, Inc. (“Nuance”) for a total purchase price of 
$18.8  billion, consisting primarily of cash. Nuance is a cloud and artificial intelligence (“AI”) software provider with healthcare  
and enterprise AI  experience, and the acquisition will build on our industry -specific cloud offerings. The financial results of 
Nuance have been included in our consolidated financial statements since the date of the acquisition. Nuance is reported 
as part of our Intellige nt Cloud segment.  
The allocation of the purchase price to goodwill was completed as of December  31, 2022. The major classes of assets and 
liabilities to which we have allocated the purchase price were as follows:  
  
(In millions)      
Goodwill (a) $ 16,326   
Intangible assets   4,365   
Other assets   42  
Other liabilities (b)  (1,972 )   
Total  $      18,761       
(a) Goodwill was assigned to our Intelligent Cloud segment and was primarily attributed to increased synergies that are 
expected to be achieved from the integration of Nuance. None of the goodwill is expected to be deductible for income 
tax purposes.   
(b) Includes $986  million of convertible senior notes issued by Nuance in 2015 and 2017, substantially all of which have 
been redeemed.   
  
Following are the details of the purchase price allocated to the intangible assets acquired:  
  
(In millions, except average life)  Amount  Weighted  
Average  Life   
      
Customer -related  $     2,610    9 years   
Technology -based   1,540    5 years   
Marketing -related   215   4 years       
Total  $      4,365    7 years         
ZeniMax Media Inc.  
On March  9, 2021, we completed our acquisition of ZeniMax Media Inc. (“ZeniMax”), the parent company of Bethesda 
Softworks LLC (“Bethesda”), for a total purchase price of $8.1  billion, consisting primarily of cash. The purchase price


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included $766  million of cash and cash equivalents acquired. Bethesda is one of the largest, privately held game developers 
and publishers in the world, and brings a broad portfolio of games, technology, and talent to Xbox. The financial results of 
ZeniMax have been included in  our consolidated financial statements since the date of the acquisition. ZeniMax is reported 
as part of our More Personal Computing segment.  
The allocation of the purchase price to goodwill was completed as of December  31, 2021. The major classes of assets and 
liabilities to which we have allocated the purchase price were as follows:  
  
(In millions)      
Cash and cash equivalents  $ 766  
Goodwill   5,510   
Intangible assets   1,968   
Other assets   121  
Other liabilities   (244)   
Total  $       8,121


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62 Goodwill was assigned to our More Personal Computing segment. The goodwill was primarily attributed to increased 
synergies that are expected to be achieved from the integration of ZeniMax. None of the goodwill is expected to be 
deductible for income tax pu rposes.  
Following are details of the purchase price allocated to the intangible assets acquired:  
  
(In millions, except average life)  Amount  Weighted  
Average  Life   
      
Technology -based  $ 1,341    4 years   
Marketing -related   627   11 years       
Total  $       1,968    6 years         
Activision Blizzard, Inc.  
On January  18, 2022, we entered into a definitive agreement to acquire Activision Blizzard, Inc. (“Activision Blizzard”) for 
$95.00 per share in an all -cash transaction valued at $68.7  billion, inclusive of Activision Blizzard’s net cash. Activision 
Blizza rd is a leader in game development and an interactive entertainment content publisher. The acquisition will accelerate 
the growth in our gaming business across mobile, PC, console, and cloud gaming. The acquisition has been approved by 
Activision Blizzard’ s shareholders. We continue to work toward closing the transaction subject to obtaining required 
regulatory approvals and satisfaction of other customary closing conditions. Microsoft and Activision Blizzard have jointly 
agreed to extend the merger agreeme nt through October  18, 2023 to allow for additional time to resolve remaining 
regulatory concerns.  
  
NOTE 9 — GOODWILL  
Changes in the carrying amount of goodwill were as follows:  
  
(In millions)  June  30, 
2021  Acquisitions  Other  June  30, 
2022  Acquisitions  Other  June  30, 
2023    
Productivity and Business 
Processes  $ 24,317   $ 599  $ (105)   $ 24,811   $ 11  $ (47 ) $ 24,775   
Intelligent Cloud   13,256    16,879    47   30,182    223   64   30,469


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More Personal Computing   12,138    648   (255)  12,531    0   111   12,642                 
Total  $  49,711   $  18,126   $  (313 ) $   67,524   $   234   $   128   $  67,886                   
The measurement periods for the valuation of assets acquired and liabilities assumed end as soon as information on the 
facts and circumstances that existed as of the acquisition dates becomes available, but do not exceed 12 months. 
Adjustments in purchase price allocations may require a change in the amounts allocated to goodwill during the periods in 
which the adjustments are determined.  
Any change in the goodwill amounts resulting from foreign currency translations and purchase accounting adjustments are  
presented as “Other” in the table above. Also included in “Other” are business dispositions and transfers between segments 
due to reorganizations, as applicable.  
Goodwill Impairment  
We test goodwill for impairment annually on May  1 at the reporting unit  level, primarily using a discounted cash flow 
methodology with a peer -based, risk -adjusted weighted average cost of capital. We believe use of a discounted cash flow 
approach is the most reliable indicator of the fair values of the businesses.  
No instanc es of impairment were identified in our May  1, 2023, May  1, 2022, or May  1, 2021 tests. As of June  30, 2023 and 
2022, accumulated goodwill impairment was $11.3  billion.


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63 NOTE 10  — INTANGIBLE ASSETS  
The components of intangible assets, all of which are fin ite-lived, were as follows:  
  
(In millions)  Gross  
Carrying  
Amount  Accumulated  
Amortization  Net 
Carrying  
Amount  Gross  
Carrying  
Amount  Accumulated  
Amortization  Net 
Carrying  
Amount    
      
June  30, 2023  2022  
              
Technology -based  $ 11,245   $ (7,589 ) $ 3,656   $ 11,277   $ (6,958 ) $ 4,319   
Customer -related   7,281    (4,047 )  3,234    7,342    (3,171 )  4,171   
Marketing -related   4,935    (2,473 )  2,462    4,942    (2,143 )  2,799   
Contract -based   29   (15)  14   16   (7)  9              
Total  $  23,490   $  (14,124)   $   9,366   $  23,577   $  (12,279 ) $   11,298                 
No material impairments of intangible assets were identified during fiscal years 2023, 2022, or 2021. We estimate that we 
have no significant residual value related to our intangible assets.  
  
The components of intangible assets acquired during the period s presented were as follows:  
  
(In millions)  Amount  Weighted  
Average  Life Amount  Weighted  
Average  Life   
          
Year Ended June  30, 2023    2022    
          
Technology -based  $ 522   7 years   $ 2,611    4 years   
Customer -related  0 0 years  2,837  9 years  
Marketing -related  7 5 years  233 4 years  
Contract -based  12 3 years  0 0 years          
Total  $  541   6 years   $  5,681    7 years


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Intangible assets amortization expense was $2.5  billion, $2.0  billion, and $1.6  billion for fiscal years 2023, 2022, and 2021, 
respectively.  
The following table outlines the estimated future amortization expense related to intangible assets held as of Jun e 30, 2023:  
  
(In millions)      
    
Year Ending June  30,   
    
2024  $ 2,363   
2025   1,881   
2026   1,381   
2027   929  
2028   652  
Thereafter   2,160     
Total  $     9,366       
  
NOTE 11  — DEBT  
The components of debt were as follows:  
  
(In millions, issuance by calendar year)  Maturities  
(calendar  year)  Stated Interest  
Rate  Effective  
Interest  
Rate  June  30, 
2023  June  30, 
2022    
            
2009 issuance of $3.8  billion   2039    5.20%    5.24%   $ 520  $ 520  
2010 issuance of $4.8  billion   2040    4.50%    4.57%    486   486  
2011 issuance of $2.3  billion   2041    5.30%    5.36%    718   718  
2012 issuance of $2.3  billion   2042    3.50%    3.57%    454   1,204


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64 (In millions, issuance by calendar year)  Maturities  
(calendar  year)  Stated Interest  
Rate  Effective  
Interest  
Rate  June  30, 
2023  June  30, 
2022  
2013 issuance of $5.2  billion   2023 –2043    3.63% –4.88%    3.73% –4.92%    1,814    2,814   
2013 issuance of €4.1 billion   2028 –2033    2.63% –3.13%    2.69% –3.22%    2,509    2,404   
2015 issuance of $23.8  billion   2025 –2055    2.70% –4.75%    2.77% –4.78%    9,805    10,805   
2016 issuance of $19.8  billion   2023 –2056    2.00% –3.95%    2.10% –4.03%    9,430    9,430   
2017 issuance of $17.0  billion   2024 –2057    2.88% –4.50%    3.04% –4.53%    8,945    8,945   
2020 issuance of $10.0  billion   2050 –2060    2.53% –2.68%    2.53% –2.68%    10,000    10,000   
2021 issuance of $8.2  billion   2052 –2062    2.92% –3.04%    2.92% –3.04%    8,185    8,185       
Total face value     52,866    55,511   
Unamortized discount and 
issuance  costs         (438)  (471) 
Hedge fair value adjustments (a)        (106)  (68) 
Premium on debt exchange         (5,085 )  (5,191 )     
Total debt     47,237    49,781


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Total debt     47,237    49,781   
Current portion of long -term debt         (5,247 )  (2,749 )     
Long -term debt    $   41,990   $   47,032               
(a) Refer to Note 5 – Derivatives for further information on the interest rate swaps related to fixed -rate debt.   
As of June  30, 2023 and 2022, the estimated fair value of long -term debt, including the current portion, was $46.2  billion 
and $50.9  billion, respectively. The estimated fair values are based on Level  2 inputs.  
Debt in the table above is comprised of seni or unsecured obligations and ranks equally with our other outstanding 
obligations. Interest is paid semi -annually, except for the Euro -denominated debt, which is paid annually. Cash paid for 
interest on our debt for fiscal years 2023, 2022, and 2021 was $1 .7 billion, $1.9  billion, and $2.0  billion, respectively.  
The following table outlines maturities of our long -term debt, including the current portion, as of June  30, 2023:  
  
(In millions)      
    
Year Ending June  30,   
    
2024  $ 5,250   
2025   2,250   
2026   3,000   
2027   8,000   
2028   0  
Thereafter   34,366     
Total  $        52,866       
  
NOTE 12  — INCOME TAXES  
Provision for Income Taxes  
The components of the provision for income taxes were as follows:  
  
(In millions)    
        
Year Ended June  30, 2023  2022  2021  
        
Current Taxes        
        
U.S. federal  $ 14,009   $ 8,329   $ 3,285   
U.S. state and local   2,322    1,679    1,229   
Foreign   6,678    6,672    5,467


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Current taxes  $  23,009   $  16,680   $   9,981   
        
Deferred Taxes        
        
U.S. federal  $ (6,146 ) $ (4,815 ) $ 25  
U.S. state and local   (477)  (1,062 )  (204)


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65 (In millions)  
Foreign   564   175   29        
Deferred taxes  $ (6,059 ) $ (5,702 ) $ (150)       
Provision for income taxes  $ 16,950   $ 10,978   $ 9,831           
U.S. and foreign components of income before income taxes were as follows:  
  
(In millions)    
        
Year Ended June  30, 2023  2022  2021  
        
U.S. $ 52,917   $ 47,837   $ 34,972   
Foreign   36,394    35,879    36,130         
Income before income taxes  $  89,311   $  83,716   $  71,102           
Effective Tax Rate  
The items accounting for the difference between income taxes computed at the U.S. federal statutory rate and our effective 
rate were as follows:  
  
        
Year Ended June  30, 2023  2022  2021  
        
Federal statutory rate   21.0%    21.0%    21.0%   
Effect of:        
Foreign earnings taxed at lower rates   (1.8)%    (1.3)%    (2.7)%   
Impact of intangible property transfers   0%   (3.9)%    0%  
Foreign -derived intangible income deduction   (1.3)%    (1.1)%    (1.3)%   
State income taxes, net of federal benefit   1.6%    1.4%    1.4%   
Research and development credit   (1.1)%    (0.9)%    (0.9)%   
Excess tax benefits relating to stock -based compensation   (0.7)%    (1.9)%    (2.4)%   
Interest, net   0.8%    0.5%    0.5%   
Other reconciling items, net   0.5%    (0.7)%    (1.8)%         
Effective rate     19.0%     13.1%     13.8%


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In the first quarter of fiscal year 2022, we transferred certain intangible properties from our Puerto Rico subsidiary to the  
U.S. The transfer of intangible properties resulted in a $3.3  billion net income tax benefit in the first quarter of fiscal year 
2022, as the value of future U.S. tax deductions exceeded the current tax liability from the U.S. global intangible low -taxed 
income (“GILTI”) tax.  
We have historically paid India withholding taxes on software sales through distributor withholding and tax audit 
assessments in India. In March 2021, the India Supreme Court ruled favorably in the case of Engineering Analysis Centre 
of Excellence Private Limited vs The Commissioner of Income Tax for companies in 86 separate appeals, some dating back 
to 2012, ho lding that software sales are not subject to India withholding taxes. Although we were not a party to the appeals, 
our software sales in India were determined to be not subject to withholding taxes. Therefore, we recorded a net income 
tax benefit of $620  million in the third quarter of fiscal year 2021 to reflect the results of the India Supreme Court decision 
impacting fiscal year  1996  through fiscal year  2016.  
The decrease from the federal statutory rate in fiscal year 2023 is primarily due to earnings t axed at lower rates in foreign 
jurisdictions resulting from producing and distributing our products and services through our foreign regional operations 
center in Ireland. The decrease from the federal statutory rate in fiscal year 2022 is primarily due to  the net income tax 
benefit related to the transfer of intangible properties, earnings taxed at lower rates in foreign jurisdictions resulting fr om 
producing and distributing our products and services through our foreign regional operations center in Irela nd, and tax 
benefits relating to stock -based compensation. The decrease from the federal statutory rate in fiscal year 2021 is primarily 
due to earnings taxed at lower rates in foreign jurisdictions resulting from producing and distributing our products an d 
services through our foreign regional operations centers in Ireland and Puerto Rico, tax benefits relating to stock -based 
compensation, and tax benefits from the India Supreme Court decision on withholding taxes. In fiscal year 2023, our foreign


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regional  operating center in Ireland, which is taxed at a rate lower than the U.S. rate, generated 81% of our foreign income


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66 before tax. In fiscal years 2022 and 2021, our foreign regional operating centers in Ireland and Puerto Rico, which are taxed  
at rates lowe r than the U.S. rate, generated 71% and 82% of our foreign income before tax. Other reconciling items, net 
consists primarily of tax credits and GILTI tax, and in fiscal year 2021, includes tax benefits from the India Supreme Court 
decision on withholding taxes. In fiscal years 2023, 2022, and 2021, there were no individually significant other reconciling 
items.  
The increase in our effective tax rate for fiscal year 2023 compared to fiscal year 2022 was primarily due to a $3.3  billion 
net income tax benefi t in the first quarter of fiscal year 2022 related to the transfer of intangible properties and a decrease 
in tax benefits relating to stock -based compensation. The decrease in our effective tax rate for fiscal year 2022 compared 
to fiscal year 2021 was pr imarily due to a $3.3  billion net income tax benefit in the first quarter of fiscal year 2022 related to 
the transfer of intangible properties, offset in part by changes in the mix of our income before income taxes between the 
U.S. and foreign countries, a s well as tax benefits in the prior year from the India Supreme Court decision on withholding 
taxes, an agreement between the U.S. and India tax authorities related to transfer pricing, and final Tax Cuts and Jobs Act 
(“TCJA”) regulations.  
  
The component s of the deferred income tax assets and liabilities were as follows:  
  
(In millions)        
      
June  30, 2023  2022  
      
Deferred Income Tax Assets      
      
Stock -based compensation expense  $ 681  $ 601  
Accruals, reserves, and other expenses   3,131    2,874   
Loss and credit carryforwards   1,441    1,546   
Amortization (a)  9,440    10,183   
Leasing liabilities   5,041    4,557   
Unearned revenue   3,296    2,876


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Unearned revenue   3,296    2,876   
Book/tax basis differences in investments and debt   373   0  
Capitalized research and development (a)  6,958    473  
Other   489   461      
Deferred income tax assets   30,850    23,571   
Less valuation allowance   (939)  (1,012 )     
Deferred income tax assets, net of valuation allowance  $ 29,911   $ 22,559       
      
Deferred Income Tax Liabilities      
      
Book/tax basis differences in investments and debt  $ 0  $ (174) 
Leasing assets   (4,680 )  (4,291 ) 
Depreciation   (2,674 )  (1,602 ) 
Deferred tax on foreign earnings   (2,738 )  (3,104 ) 
Other   (89)  (103)     
Deferred income tax liabilities  $ (10,181 ) $ (9,274 )     
Net deferred income tax assets  $ 19,730   $ 13,285         
      
Reported As      
      
Other long -term assets  $ 20,163   $ 13,515   
Long -term deferred income tax liabilities   (433)  (230)     
Net deferred income tax assets  $   19,730   $   13,285         
(a) Provisions enacted in the TCJA related to the capitalization for tax purposes of research and development 
expenditures became effective on July  1, 2022. These provisions require us to capitalize research and development 
expenditures and amortize them on our U.S. tax return over five or fifteen years, depending on where research is 
conducted.   
Deferred income tax balances reflect the effects of temporary differences between  the carrying amounts of assets and 
liabilities and their tax bases and are stated at enacted tax rates expected to be in effect when the taxes are paid or 
recovered.


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67 As of June  30, 2023, we had federal, state, and foreign net operating loss carryforwards  of $509  million, $1.2  billion, and 
$2.3 billion, respectively. The federal and state net operating loss carryforwards have varying expiration dates ranging from 
fiscal year 2024 to 2043 or indefinite carryforward periods, if not utilized. The majority of our foreign net operating loss 
carryforwards do not expire. Certain acquired net operating loss carryforwards are subject to an annual limitation but are 
expected to be realized with the exception of those which have a valuation allowance. As of June  30, 2 023, we had 
$456  million federal capital loss carryforwards for U.S. tax purposes from our acquisition of Nuance. The federal capital loss 
carryforwards are subject to an annual limitation and will expire in fiscal year 2025.  
The valuation allowance discl osed in the table above relates to the foreign net operating loss carryforwards, federal capital 
loss carryforwards, and other net deferred tax assets that may not be realized.  
  
Income taxes paid, net of refunds, were $23.1  billion, $16.0  billion, and $1 3.4 billion in fiscal years 2023, 2022, and 2021, 
respectively.  
Uncertain Tax Positions  
Gross unrecognized tax benefits related to uncertain tax positions as of June  30, 2023, 2022, and 2021, were $17.1  billion, 
$15.6  billion, and $14.6  billion, respectively, which were primarily included in long -term income taxes in our consolidated 
balance sheets. If recognized, the resulting tax benefit would affect our effective tax rates for fiscal years 2023, 2022, and 
2021 by $14.4  billion, $13.3  billion, and $12.5  billion, respectively.  
As of June  30, 2023, 2022, and 2021, we had accrued interest expe nse related to uncertain tax positions of $5.2  billion,


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$4.3 billion, and $4.3  billion, respectively, net of income tax benefits. The provision for income taxes for fiscal years 2023, 
2022, and 2021 included interest expense related to uncertain tax positi ons of $918  million, $36  million, and $274  million, 
respectively, net of income tax benefits.  
The aggregate changes in the gross unrecognized tax benefits related to uncertain tax positions were as follows:  
  
(In millions)          
        
Year Ended June  30, 2023  2022  2021  
        
Beginning unrecognized tax benefits  $ 15,593   $ 14,550   $ 13,792   
Decreases related to settlements   (329)  (317)  (195) 
Increases for tax positions related to the current year   1,051    1,145    790  
Increases for tax positions related to prior years   870   461   461  
Decreases for tax positions related to prior years   (60)  (246)  (297) 
Decreases due to lapsed statutes of limitations   (5)  0   (1)       
Ending unrecognized tax benefits  $  17,120   $  15,593   $  14,550           
We settled a portion of the Internal Revenue Service (“IRS”) audit for tax years 2004 to 2006 in fiscal year 2011. In Februar y 
2012, the IRS withdrew its 2011 Revenue Agents Report related to unresolved issues for tax years 2004 to 2006 and 
reopened the au dit phase of the examination. We also settled a portion of the IRS audit for tax years 2007 to 2009 in fiscal 
year 2016, and a portion of the IRS audit for tax years 2010 to 2013 in fiscal year 2018. In the second quarter of fiscal yea r 
2021, we settled an  additional portion of the IRS audits for tax years 2004 to 2013 and made a payment of $1.7  billion, 
including tax and interest. We remain under audit for tax years 2004 to 2017.


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As of June  30, 2023, the primary unresolved issues for the IRS audits relate  to transfer pricing, which could have a material 
impact in our consolidated financial statements when the matters are resolved. We believe our allowances for income tax 
contingencies are adequate. We have not received a proposed assessment for the unresol ved key transfer pricing issues. 
We do not expect a final resolution of these issues in the next 12 months.  Based on the information currently available, we 
do not anticipate a significant increase or decrease to our tax contingencies for these issues with in the next 12 months.  
We are subject to income tax in many jurisdictions outside the U.S. Our operations in certain jurisdictions remain subject to  
examination for tax years 1996 to 2022, some of which are currently under audit by local tax authorities. The resolution of 
each of these audits is not expected to be material to our consolidated financial statements.


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68 NOTE 13 — UNEARNED REVENUE  
Unearned revenue by segment was as follows:  
  
(In millions)        
      
June  30, 2023  2022  
      
Productivity and Business Processes  $ 27,572   $ 24,558   
Intelligent Cloud   21,563    19,371   
More Personal Computing   4,678    4,479       
Total  $   53,813   $   48,408         
Changes in unearned revenue were as follows:  
  
(In millions)      
    
Year Ended June  30, 2023    
    
Balance, beginning of period  $ 48,408   
Deferral of revenue   123,935   
Recognition of unearned revenue   (118,530 )   
Balance, end of period  $   53,813       
Revenue allocated to remaining performance obligations, which includes unearned revenue and amounts that will be 
invoiced and recognized as revenue in future periods, was $229  billion as of June  30, 2023, of which $224  billion is related 
to the commercial portion of revenue. We expect to recognize approximately 45% of this revenue over the next 12 months 
and the remainder thereafter.  
NOTE 14  — LEASES  
We have operating and finance leases for datacenters, corporate offices, research and development faciliti es, Microsoft 
Experience Centers, and certain equipment. Our leases have remaining lease terms of less than 1 year to 18 years, some 
of which include options to extend the leases for up to 5 years, and some of which include options to terminate the leases 
within 1 year.  
The components of lease expense were as follows:  
  
(In millions)      
        
Year Ended June  30, 2023  2022  2021  
        
Operating lease cost  $  2,875   $  2,461   $  2,127           
Finance lease cost:        
Amortization of right-of-use assets  $ 1,352   $ 980  $ 921  
Interest on lease liabilities   501   429   386


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Interest on lease liabilities   501   429   386        
Total finance lease cost  $ 1,853   $ 1,409   $ 1,307           
  
Supplemental cash flow information related to leases was as follows:  
  
(In millions)      
        
Year Ended June  30, 2023  2022  2021  
        
Cash paid for amounts included in the measurement of lease liabilities:        
Operating cash flows from operating leases  $  2,706   $  2,368   $  2,052   
Operating cash flows from finance leases   501   429   386  
Financing cash flows from finance leases   1,056    896   648  
        
Right -of-use assets obtained in exchange for lease obligations:        
Operating leases   3,514    5,268    4,380   
Finance leases   3,128    4,234    3,290


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69 Supplemental balance sheet information related to leases was as follows:  
  
(In millions, except lease term and discount rate)        
      
June  30, 2023  2022  
      
Operating Leases      
      
Operating lease right -of-use assets  $   14,346   $   13,148         
Other current liabilities  $ 2,409   $ 2,228   
Operating lease liabilities   12,728    11,489       
Total operating lease liabilities  $ 15,137   $ 13,717         
      
Finance Leases      
      
Property and equipment, at cost  $ 20,538   $ 17,388   
Accumulated depreciation   (4,647 )  (3,285 )     
Property and equipment, net  $ 15,891   $ 14,103         
Other current liabilities  $ 1,197   $ 1,060   
Other long -term liabilities   15,870    13,842       
Total finance lease liabilities  $ 17,067   $ 14,902         
      
Weighted Average Remaining Lease Term      
      
Operating leases   8 years    8 years   
Finance leases   11 years    12 years   
      
Weighted Average Discount Rate      
      
Operating leases   2.9%    2.1%   
Finance leases   3.4%    3.1%     
  
The following table outlines maturities of our lease liabilities as of June  30, 2023:  
  
(In millions)        
      
Year Ending June  30, Operating  
Leases  Finance  
Leases  
      
2024  $ 2,784   $ 1,747   
2025   2,508    2,087   
2026   2,142    1,771   
2027   1,757    1,780   
2028   1,582    1,787   
Thereafter   6,327    11,462       
Total lease payments   17,100    20,634   
Less imputed interest   (1,963 )  (3,567 )


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Total  $    15,137   $    17,067         
As of June  30, 2023, we have additional operating and finance leases, primarily for datacenters, that have not yet 
commenced of $7.7  billion and $34.4  billion, respectively. These operating and finance leases will commence between fiscal 
year 2024 and fisc al year 2030 with lease terms of 1 year to 18 years.  
NOTE 15 — CONTINGENCIES  
U.S. Cell Phone Litigation  
Microsoft Mobile Oy, a subsidiary of Microsoft, along with other handset manufacturers and network operators, is a 
defendant in 46 lawsuits, including 45 lawsuits filed in the Superior Court for the District of Columbia by individual plaint iffs 
who allege that radio emissions from cellular handsets caused their brain tumors and other adverse health effects. We 
assumed responsibility for these claims in our agreement to acquire Nokia’s Devices and Services business and have been 
substituted for the Nokia def endants. Nine of these cases were filed in 2002 and are consolidated for certain pre -trial 
proceedings; the remaining cases are stayed. In a separate 2009 decision, the Court of Appeals for the District of Columbia


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70 held that adverse health effect claims ar ising from the use of cellular handsets that operate within the U.S. Federal 
Communications Commission radio frequency emission guidelines (“FCC Guidelines”) are pre -empted by federal law. The 
plaintiffs allege that their handsets either operated outside t he FCC Guidelines or were manufactured before the FCC 
Guidelines went into effect. The lawsuits also allege an industry -wide conspiracy to manipulate the science and testing 
around emission guidelines.  
In 2013, the defendants in the consolidated cases mov ed to exclude the plaintiffs’ expert evidence of general causation on 
the basis of flawed scientific methodologies. In 2014, the trial court granted in part and denied in part the defendants’ mot ion 
to exclude the plaintiffs’ general causation experts. The  defendants filed an interlocutory appeal to the District of Columbia 
Court of Appeals challenging the standard for evaluating expert scientific evidence. In October 2016, the Court of Appeals 
issued its decision adopting the standard advocated by the defe ndants and remanding the cases to the trial court for further 
proceedings under that standard. The plaintiffs have filed supplemental expert evidence, portions of which were stricken by 
the court. A hearing on general causation took place in September of 2 022. In April of 2023, the court granted defendants’ 
motion to strike the testimony of plaintiffs’ experts that cell phones cause brain cancer and entered an order excluding all of 
plaintiffs’ experts from testifying.  
Irish Data Protection Commission Matt er  
In 2018, the Irish Data Protection Commission (“IDPC”) began investigating a complaint against LinkedIn as to whether 
LinkedIn’s targeted advertising practices violated the recently implemented European Union General Data Protection 
Regulation (“GDPR”) . Microsoft cooperated throughout the period of inquiry. In April 2023, the IDPC provided LinkedIn with 
a non -public preliminary draft decision alleging GDPR violations and proposing a fine. Microsoft intends to challenge the 
preliminary draft decision. Th ere is no set timeline for the IDPC to issue a final decision.  
Other Contingencies  
We also are subject to a variety of other claims and suits that arise from time to time in the ordinary course of our busines s. 
Although management currently believes that  resolving claims against us, individually or in aggregate, will not have a


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material adverse impact in our consolidated financial statements, these matters are subject to inherent uncertainties and 
management’s view of these matters may change in the futur e.  
As of June  30, 2023, we accrued aggregate legal liabilities of $617  million. While we intend to defend these matters 
vigorously, adverse outcomes that we estimate could reach approximately $600  million in aggregate beyond recorded 
amounts are reasonabl y possible. Were unfavorable final outcomes to occur, there exists the possibility of a material 
adverse impact in our consolidated financial statements for the period in which the effects become reasonably estimable.  
NOTE 16  — STOCKHOLDERS’ EQUITY  
Share s Outstanding  
Shares of common stock outstanding were as follows:  
  
(In millions)          
        
Year Ended June  30, 2023  2022  2021  
        
Balance, beginning of year   7,464    7,519    7,571   
Issued   37   40   49  
Repurchased   (69)  (95)  (101)       
Balance, end of year    7,432     7,464     7,519           
Share Repurchases  
On September  18, 2019, our Board of Directors approved a share repurchase program authorizing up to $40.0  billion in 
share repurchases. This share repurchase program commenced in February 2020 and was completed in November 2021.


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71 On September  14, 2021, our Board of Directors approved a share repurchase program authorizing up to $60.0  billion in 
share repurchases. This share repurchase program commenced in November 2021, following completion of the program 
approved on September  18, 2019, has no expiration date, and may be terminated at any time. As of June  30, 2023, 
$22.3  billion remained of this $60.0  billion share repurchase program.  
We repurchased the following shares of common stock under the share repurchase programs:  
  
(In mi llions)  Shares  Amount  Shares  Amount  Shares  Amount    
        
Year Ended June  30, 2023  2022  2021  
              
First Quarter   17  $ 4,600    21  $ 6,200    25  $ 5,270   
Second Quarter   20   4,600    20   6,233    27   5,750   
Third Quarter   18   4,600    26   7,800    25   5,750   
Fourth Quarter   14   4,600    28   7,800    24   6,200               
Total    69  $  18,400     95  $  28,033     101  $  22,970                 
  
All repurchases were made using cash resources. Shares repurchased during fiscal year 2023 and the fourth and third 
quarters of fiscal year 2022 were under the share repurchase program approved on September  14, 2021. Shares 
repurchased during the second qu arter of fiscal year 2022 were under the share repurchase programs approved on both 
September  14, 2021 and September  18, 2019. All other shares repurchased were under the share repurchase program 
approved on September  18, 2019. The above table excludes sha res repurchased to settle employee tax withholding related


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to the vesting of stock awards of $3.8  billion, $4.7  billion, and $4.4  billion for fiscal years 2023, 2022, and 2021, respectively.  
Dividends  
Our Board of Directors declared the following dividen ds:  
  
Declaration Date  Record Date  Payment  Date  Dividend  
Per Share  Amount    
          
Fiscal Year 2023        (In millions)  
          
September  20, 2022  November  17, 2022  December  8, 2022  $ 0.68  $ 5,066   
November  29, 2022  February  16, 2023  March  9, 2023   0.68   5,059   
March  14, 2023  May 18, 2023  June  8, 2023   0.68   5,054   
June  13, 2023  August  17, 2023  September  14, 2023   0.68   5,054   
  
Total      $ 2.72  $ 20,233   
          
          
Fiscal Year 2022          
          
September  14, 2021  November  18, 2021  December  9, 2021  $ 0.62  $ 4,652   
December  7, 2021  February  17, 2022  March  10, 2022   0.62   4,645   
March  14, 2022  May 19, 2022  June  9, 2022   0.62   4,632   
June  14, 2022  August  18, 2022  September  8, 2022   0.62   4,621   
  
          
Total      $  2.48  $   18,550   
          
The dividend declared on June  13, 2023 was included in other current liabilities as of June  30, 2023.


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72 NOTE 17 — ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)  
The following table summarizes the changes in accumulated other comprehensive income (loss) by component:  
  
(In millions)      
        
Year Ended June  30, 2023  2022  2021  
        
Derivatives        
        
Balance, beginning of period  $ (13) $ (19) $ (38) 
Unrealized gains (losses), net of tax of $9, $(15), and $9        34   (57)    34  
Reclassification adjustments for (gains) losses included in other income 
(expense), net   (61)    79   (17) 
Tax expense (benefit) included in provision for income taxes   13   (16)  2        
Amounts reclassified from accumulated other comprehensive income 
(loss)   (48)  63   (15)       
Net change related to derivatives, net of tax of $(4), $1, and $7   (14)  6   19        
Balance, end of period  $ (27) $ (13) $ (19)       
        
Investments        
        
Balance, beginning of period  $ (2,138 ) $ 3,222   $ 5,478   
Unrealized losses, net of tax of $(393) , $(1,440), and $(589)   (1,523 )  (5,405 )  (2,216 ) 
Reclassification adjustments for (gains) losses included in other income 
(expense), net   99   57   (63) 
Tax expense (benefit) included in provision for income taxes   (20)  (12)  13        
Amounts reclassified from accumulated other comprehensive income 
(loss)   79   45   (50)       
Net change related to investments, net of tax of $(373) , $(1,428), and 
$(602)   (1,444 )  (5,360 )  (2,266 ) 
Cumulative effect of accounting changes   0   0   10        
Balance, end of period  $ (3,582 ) $ (2,138 ) $ 3,222


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Translation Adjustments and Other        
        
Balance, beginning of period  $ (2,527 ) $ (1,381 ) $ (2,254 ) 
Translation adjustments and other, net of tax of $0, $0, and $(9)   (207)  (1,146 )  873        
Balance, end of period  $ (2,734 ) $ (2,527 ) $ (1,381 )       
Accumulated other comprehensive income (loss), end of period  $ (6,343 ) $ (4,678 ) $ 1,822           
NOTE 18 — EMPLOYEE STOCK AND SAVINGS PLANS  
We grant stock -based compensation to employees and directors. Awards that expire or are canceled without delivery of 
shares generally become available for issuance under the plans. We issue new shares of Microsoft common stock to satisfy 
vesting of awards granted under our stock plans. We also have an ESPP for all eligible employees.  
Stock -based compensation expense and related income tax benefits were as follows:  
  
(In millions)          
        
Year Ended June  30, 2023  2022  2021  
        
Stock -based compensation expense  $  9,611   $  7,502   $  6,118   
Income tax benefits related to stock -based compensation   1,651    1,293    1,065     
  
Stock Plans  
Stock awards entitle the holder to receive shares of Microsoft common stock as the award vests. Stock awards generally 
vest over a service period of four years or five years.


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73 Executive Incentive Plan  
Under the Executive Incentive Plan, the Compensation C ommittee approves stock awards to executive officers and certain 
senior executives. RSUs generally vest ratably over a service period of four years. PSUs generally vest over a performance 
period of three years. The number of shares the PSU holder receives is based on the extent to which the corresponding 
performance goals have been achieved.  
Activity for All Stock Plans  
The fair value of stock awards was estimated on the date of grant using the following assumptions:  
  
        
Year ended June  30, 2023  2022  2021  
        
Dividends per share (quarterly amounts)  $  0.62  –  0.68   $  0.56  –  0.62   $  0.51  –  0.56   
Interest rates   2.0%  – 5.4%    0.03%  – 3.6%    0.01%  – 1.5%     
During fiscal year 2023, the following activity occurred under our stock plans:  
  
Shares  Weighted  Average  
Grant -Date  Fair Value    
    
(In millions)    
  
Stock Awards  
      
Nonvested balance, beginning of year     93  $ 227.59   
Granted (a)  56   252.59   
Vested   (44)  206.90   
Forfeited   (9)  239.93       
Nonvested balance, end of year   96  $      250.37         
(a) Includes 1  million, 1  million, and 2  million of PSUs granted at target and performance adjustments above target levels 
for fiscal years 2023, 2022, and 2021, respectively.   
As of June  30, 2023, total unrecognized compensation costs related to stock awards were $18.6  billion. These costs are 
expected to be recognized over a weighted average period of three years. The weighted average grant -date fair value of


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stock awards grant ed was $252.59, $291.22, and $221.13 for fiscal years 2023, 2022, and 2021, respectively. The fair value 
of stock awards vested was $11.9  billion, $14.1  billion, and $13.4  billion, for fiscal years 2023, 2022, and 2021, respectively. 
As of June  30, 2023, a n aggregate of 164  million shares were authorized for future grant under our stock plans.  
Employee Stock Purchase Plan  
We have an ESPP for all eligible employees. Shares of our common stock may be purchased by employees at three -month 
intervals at 90% of  the fair market value on the last trading day of each three -month period. Employees may purchase 
shares having a value not exceeding 15% of their gross compensation during an offering period.  
  
Employees purchased the following shares during the periods presented:  
  
(Shares in millions)          
        
Year Ended June  30, 2023  2022  2021  
        
Shares purchased   7   7   8  
Average price per share  $  245.59   $  259.55   $  207.88     
As of June  30, 2023, 74  million shares of our common stock were reserved for future issuance through the ESPP.  
Savings Plans  
We have savings plans in the U.S. that qualify under Section  401(k) of the Internal Revenue Code, and a number of savings 
plans i n international locations. Eligible U.S. employees may contribute a portion of their salary into the savings plans,


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74 subject to certain limitations. We match a portion of each dollar a participant contributes into the plans. Employer -funded 
retirement benef its for all plans were $1.6  billion, $1.4  billion, and $1.2  billion in fiscal years 2023, 2022, and 2021, 
respectively, and were expensed as contributed.  
NOTE 19  — SEGMENT INFORMATION AND GEOGRAPHIC DATA  
In its operation of the business, management, incl uding our chief operating decision maker, who is also our Chief Executive 
Officer, reviews certain financial information, including segmented internal profit and loss statements prepared on a basis 
not consistent with GAAP. During the periods presented, we  reported our financial performance based on the following 
segments: Productivity and Business Processes, Intelligent Cloud, and More Personal Computing.  
We have recast certain prior period amounts to conform to the way we internally manage and monitor ou r business.  
Our reportable segments are described below.  
Productivity and Business Processes  
Our Productivity and Business Processes segment consists of products and services in our portfolio of productivity, 
communication, and information services, spa nning a variety of devices and platforms. This segment primarily comprises:  
• Office Commercial (Office 365 subscriptions, the Office 365 portion of Microsoft 365 Commercial subscriptions, 
and Office licensed on -premises), comprising Office, Exchange, Sha rePoint, Microsoft Teams, Office 365 
Security and Compliance, Microsoft Viva, and Microsoft 365 Copilot.  
• Office Consumer, including Microsoft 365 Consumer subscriptions, Office licensed on -premises, and other 
Office services.  
• LinkedIn, including Tale nt Solutions, Marketing Solutions, Premium Subscriptions, and Sales Solutions.  
• Dynamics business solutions, including Dynamics 365, comprising a set of intelligent, cloud -based applications 
across ERP, CRM (including Customer Insights), Power Apps, and Power Automate; and on -premises ERP 
and CRM applications.  
Intelligent Cloud  
Our Intelligent Cloud segment consists of our public, private, and hybrid server products and cloud services that can power 
modern business and developers. This segment primarily comprises:  
• Server products and cloud services, including Azure and other c loud services; SQL Server, Windows Server,


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Visual Studio, System Center, and related Client Access Licenses (“CALs”); and Nuance and GitHub.  
  
• Enterprise Services, including Enterprise Support Services, Industry Solutions (formerly Microsoft Consulting 
Services), and Nuance professional services.  
More Personal Computing  
Our More Personal Computing segment consists of products and services that put customers at the center of the experience 
with our technology. This segment primarily comprises:  
• Window s, including Windows OEM licensing and other non -volume licensing of the Windows operating system; 
Windows Commercial, comprising volume licensing of the Windows operating system, Windows cloud services, 
and other Windows commercial offerings; patent licen sing; and Windows Internet of Things.  
• Devices, including Surface, HoloLens, and PC accessories.  
• Gaming, including Xbox hardware and Xbox content and services, comprising first - and third -party content 
(including games and in -game content), Xbox Game Pass and other subscriptions, Xbox Cloud Gaming, 
advertising, third -party disc royalties, and other cloud services.  
• Search and news advertising, comprising Bing (including Bing Chat), Microsoft News, Microsoft Edge, and 
third-party affiliates.


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75 Revenue and costs are generally directly attributed to our segments. However, due to the integrated structure of our 
business, certain revenue recognized and costs incurred by one segment may benefit other segments. Revenue from 
certain contracts is allocated amon g the segments based on the relative value of the underlying products and services, 
which can include allocation based on actual prices charged, prices when sold separately, or estimated costs plus a profit 
margin. Cost of revenue is allocated in certain c ases based on a relative revenue methodology. Operating expenses that 
are allocated primarily include those relating to marketing of products and services from which multiple segments benefit 
and are generally allocated based on relative gross margin.  
In addition, certain costs are incurred at a corporate level and allocated to our segments. These allocated costs generally 
include legal, including settlements and fines, information technology, human resources, finance, excise taxes, field selling , 
shared f acilities services, customer service and support, and severance incurred as part of a corporate program. Each 
allocation is measured differently based on the specific facts and circumstances of the costs being allocated and is generall y 
based on relative g ross margin or relative headcount.  
Segment revenue and operating income were as follows during the periods presented:  
  
(In millions)          
        
Year Ended June  30, 2023  2022  2021  
        
Revenue        
        
Productivity and Business Processes  $ 69,274   $ 63,364   $ 53,915   
Intelligent Cloud   87,907    74,965    59,728   
More Personal Computing   54,734    59,941    54,445         
Total  $  211,915   $  198,270   $  168,088           
  
Operating Income  
        
Productivity and Business Processes  $ 34,189   $ 29,690   $ 24,351   
Intelligent Cloud   37,884    33,203    26,471   
More Personal Computing   16,450    20,490    19,094         
Total  $ 88,523   $ 83,383   $ 69,916


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No sales to an individual customer or country other than the United States accounted for more than 10% of revenue for 
fiscal years 2023, 2022, or 2021. Revenue, classified by the major geographic areas in which our customers were located, 
was as follows:  
  
(In millions)          
        
Year Ended June  30, 2023  2022  2021  
        
United States (a) $ 106,744   $ 100,218   $ 83,953   
Other countries   105,171    98,052    84,135         
Total  $  211,915   $  198,270   $  168,088           
(a) Includes billings to OEMs and certain multinational organizations because of the nature of these businesses and the 
impracticability of determining the geographic source of the revenue.  
Revenue, classified by significant product and service offerings, was  as follows:  
  
(In millions)          
        
Year Ended June  30, 2023  2022  2021  
        
Server products and cloud services  $ 79,970   $ 67,350   $ 52,589   
Office products and cloud services   48,728    44,862    39,872   
Windows   21,507    24,732    22,488   
Gaming   15,466    16,230    15,370   
LinkedIn   15,145    13,816    10,289   
Search and news advertising   12,208    11,591    9,267   
Enterprise Services   7,722    7,407    6,943   
Devices   5,521    7,306    7,143


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76 (In millions)        
Dynamics   5,437    4,687    3,754   
Other   211   289   373        
Total  $  211,915   $  198,270   $  168,088           
Our Microsoft Cloud revenue, which includes Azure and other cloud services, Office 365 Commercial, the commercial 
portion of LinkedIn, Dynamics 365, and other commercial cloud properties, was $111.6  billion, $91.4  billion, and $69.1  billion 
in fiscal years  2023, 2022, and 2021, respectively. These amounts are primarily included in Server products and cloud 
services, Office products and cloud services, LinkedIn, and Dynamics in the table above.  
Assets are not allocated to segments for internal reporting pre sentations. A portion of amortization and depreciation is 
included with various other costs in an overhead allocation to each segment. It is impracticable for us to separately identif y 
the amount of amortization and depreciation by segment that is included  in the measure of segment profit or loss.  
Long -lived assets, excluding financial instruments and tax assets, classified by the location of the controlling statutory 
company and with countries over 10% of the total shown separately, were as follows:  
  
(In millions)          
        
June  30, 2023  2022  2021  
        
United States  $ 114,380   $ 106,430   $ 76,153   
Ireland   16,359    15,505    13,303   
Other countries   56,500    44,433    38,858         
Total  $   187,239   $   166,368   $   128,314


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77 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  
To the Stockholders and the Board of Directors of Microsoft Corporation  
Opinion on the Financial Statements  
We have audited the accompanying consolidated balance sheets of Microsoft Corporation and subsidiaries (the “Company”) 
as of June  30, 2023 and 2022, the related consolidated statements of income, comprehensive income, cash flows, and 
stockholders’ equity, for each of the three years in the period ended June  30, 2023, and the related notes (collectively 
referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects , the 
financial position of the Company as of June  30, 2023 and 2022, and the results of its operations and its cash flows for each 
of the three years in the period ended June  30, 2023, in conformity with accounting principles generally accepted in the 
United States of America.  
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) 
(PCAOB), the Company’s internal control over financial reporting as of June  30, 2023, based on criteria established in 
Internal Control — Integr ated Framework (2013)  issued by the Committee of Sponsoring Organizations of the Treadway 
Commission and our report dated July  27, 2023, expressed an unqualified opinion on the Company’s internal control over 
financial reporting.  
Basis for Opinion  
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion 
on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB 
and are required to be  independent with respect to the Company in accordance with the U.S. federal securities laws and 
the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.  
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform 
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether 
due to error or fraud. Our audits included performing procedures to assess th e risks of material misstatement of the financial


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statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included 
examining, on a test basis, evidence regarding the amounts and disclosures in the f inancial statements. Our audits also 
included evaluating the accounting principles used and significant estimates made by management, as well as evaluating 
the overall presentation of the financial statements. We believe that our audits provide a reasonabl e basis for our opinion.  
Critical Audit Matters  
The critical audit matters communicated below are matters arising from the current -period audit of the financial statements 
that were communicated or required to be communicated to the audit committee and t hat (1)  relate to accounts or 
disclosures that are material to the financial statements and (2)  involved our especially challenging, subjective, or complex 
judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, 
taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the 
critical audit matters or on the accounts or disclosures to which they relate.  
Revenue Recognition – Refer to Not e 1 to the financial statements   
Critical Audit Matter Description  
The Company recognizes revenue upon transfer of control of promised products or services to customers in an amount that 
reflects the consideration the Company expects to receive in exchange for those products or services. The Company offers 
customers the a bility to acquire multiple licenses of software products and services, including cloud -based services, in its 
customer agreements through its volume licensing programs.  
  
Significant judgment is exercised by the Company in determining revenue recognition for these customer agreements, and 
includes the following:  
• Determination of whether products and services are considered distinct performance obligations that should be 
accounted for separately versus together, such as software licenses and related serv ices that are sold with cloud -based 
services.


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78 • The pattern of delivery (i.e., timing of when revenue is recognized) for each distinct performance obligation.  
• Identification and treatment of contract terms that may impact the timing and amount of reven ue recognized (e.g., 
variable consideration, optional purchases, and free services).  
• Determination of stand -alone selling prices for each distinct performance obligation and for products and services that 
are not sold separately.  
Given these factors an d due to the volume of transactions, the related audit effort in evaluating management’s judgments 
in determining revenue recognition for these customer agreements was extensive and required a high degree of auditor 
judgment.  
How the Critical Audit Matter  Was Addressed in the Audit  
Our principal audit procedures related to the Company’s revenue recognition for these customer agreements included the 
following:  
• We tested the effectiveness of controls related to the identification of distinct performance obligations, the determination 
of the timing of revenue recognition, and the estimation of variable consideration.  
• We evaluated management’s significant accoun ting policies related to these customer agreements for reasonableness.  
• We selected a sample of customer agreements and performed the following procedures:  
- Obtained and read contract source documents for each selection, including master agreements, an d other documents 
that were part of the agreement.  
- Tested management’s identification and treatment of contract terms.  
- Assessed the terms in the customer agreement and evaluated the appropriateness of management’s application of 
their accounting poli cies, along with their use of estimates, in the determination of revenue recognition conclusions.  
• We evaluated the reasonableness of management’s estimate of stand -alone selling prices for products and services 
that are not sold separately.  
• We tested  the mathematical accuracy of management’s calculations of revenue and the associated timing of revenue 
recognized in the financial statements.  
Income Taxes – Uncertain Tax Positions – Refer to Note 12 to the financial statements   
Critical Audit Matter De scription  
The Company’s long -term income taxes liability includes uncertain tax positions related to transfer pricing issues that remain 
unresolved with the Internal Revenue Service (“IRS”). The Company remains under IRS audit, or subject to IRS audit, fo r 
tax years subsequent to 2003. While the Company has settled a portion of the IRS audits, resolution of the remaining


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matters could have a material impact on the Company’s financial statements.  
Conclusions on recognizing and measuring uncertain tax posit ions involve significant estimates and management judgment 
and include complex considerations of the Internal Revenue Code, related regulations, tax case laws, and prior -year audit 
settlements. Given the complexity and the subjective nature of the transfer  pricing issues that remain unresolved with the 
IRS, evaluating management’s estimates relating to their determination of uncertain tax positions required extensive audit 
effort and a high degree of auditor judgment, including involvement of our tax specia lists.  
  
How the Critical Audit Matter Was Addressed in the Audit  
Our principal audit procedures to evaluate management’s estimates of uncertain tax positions related to unresolved transfer 
pricing issues included the following:  
• We evaluated the appro priateness and consistency of management’s methods and assumptions used in the 
identification, recognition, measurement, and disclosure of uncertain tax positions, which included testing the 
effectiveness of the related internal controls.  
• We read and evaluated management’s documentation, including relevant accounting policies and information obtained 
by management from outside tax specialists, that detailed the basis of the uncertain tax positions.


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79 • We tested the reasonableness of managem ent’s judgments regarding the future resolution of the uncertain tax 
positions, including an evaluation of the technical merits of the uncertain tax positions.  
• For those uncertain tax positions that had not been effectively settled, we evaluated whether  management had 
appropriately considered new information that could significantly change the recognition, measurement or disclosure of 
the uncertain tax positions.  
• We evaluated the reasonableness of management’s estimates by considering how tax law, including statutes, 
regulations and case law, impacted management’s judgments.  
/S/ DELOITTE  & T OUCHE  LLP  
Seattle, Washington  
July 27, 2023  
We have served as the Compa ny’s auditor since 1983.


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80 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
FINANCIAL DISCLOSURE  
Not applicable.  
CONTROLS AND PROCEDURES  
Under the supervision and with the participation of our management, including the Chief Executive Of ficer and Chief 
Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as required by Exchange 
Act Rule 13a -15(b) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Of ficer 
and Chief Financial Officer have concluded that these disclosure controls and procedures are effective.  
REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING  
Our management is responsible for establishing and maintaining adequate intern al control over financial reporting for the 
Company. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of 
our financial reporting for external purposes in accordance with accounting principles generally accepted in the United 
States of America. Internal control over financial reporting includes maintaining records that in reasonable detail accuratel y 
and fairly reflect our transactions; providing reasonable assurance that transactions are record ed as necessary for 
preparation of our consolidated financial statements; providing reasonable assurance that receipts and expenditures of 
company assets are made in accordance with management authorization; and providing reasonable assurance that 
unauthor ized acquisition, use, or disposition of company assets that could have a material effect on our consolidated 
financial statements would be prevented or detected on a timely basis. Because of its inherent limitations, internal control 
over financial report ing is not intended to provide absolute assurance that a misstatement of our consolidated financial 
statements would be prevented or detected.  
Management conducted an evaluation of the effectiveness of our internal control over financial reporting based o n the 
framework in Internal Control – Integrated Framework (2013)  issued by the Committee of Sponsoring Organizations of the 
Treadway Commission. Based on this evaluation, management concluded that the Company’s internal control over financial 
reporting wa s effective as of June  30, 2023. There were no changes in our internal control over financial reporting during 
the quarter ended June  30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal 
control over financial  reporting. Deloitte  & Touche LLP has audited our internal control over financial reporting as of June  30,


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81 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  
To the Stockholders and the Board of Directors of Microsoft Corporation  
Opinion on Internal Control over Financial Reporting  
We have audited the internal control over financial reporting of Microsoft Corporation and subsidiaries (the “Company”) as 
of Jun e 30, 2023, based on criteria established in Internal Control — Integrated Framework (2013)  issued by the Committee 
of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material 
respects, effective i nternal control over financial reporting as of June  30, 2023, based on criteria established in Internal 
Control — Integrated Framework (2013)  issued by COSO.  
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) 
(PCAOB), the consolidated financial statements as of and for the year ended June  30, 2023, of the Company and our report 
dated July  27, 2023, expressed an unqualified opinion on those financial statements.  
Basis for Opinion  
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its 
assessment of the effectiveness of internal co ntrol over financial reporting, included in the accompanying Report of 
Management on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s 
internal control over financial reporting based on our audit. We ar e a public accounting firm registered with the PCAOB and 
are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the 
applicable rules and regulations of the Securities and Exchange Commission and t he PCAOB.  
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform 
the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in 
all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing 
the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control 
based on  the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We 
believe that our audit provides a reasonable basis for our opinion.


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believe that our audit provides a reasonable basis for our opinion.  
Definition and Limitations of Internal Control over Financial Reporting  
A com pany’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the 
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with gener ally 
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures 
that (1)  pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and 
dispositions o f the assets of the company; (2)  provide reasonable assurance that transactions are recorded as necessary 
to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts 
and expenditures of the c ompany are being made only in accordance with authorizations of management and directors of 
the company; and (3)  provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, 
use, or disposition of the company’s assets that could have a material effect on the financial statements.  
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,  
projections of any evaluation of effectiveness to future periods a re subject to the risk that controls may become inadequate 
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.  
  
/S/ DELOITTE  & TOUCHE  LLP   
    
Seattle, Washington    
July 27, 2023


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82 DIRECTORS AND EXECUTIVE OFFICERS OF MICROSOFT CORPORATION  
  
DIRECTORS  
  
Satya Nadella  
Chairman and Chief Executive Officer,  
Microsoft Corporation   Sandra E. Peterson 2,3 
Lead Independent Director,  
Microsoft Corporation  John W. Stanton 1,4 
Founder and Chairman, Trilogy 
Partnerships  
      
Reid G. Hoffman 4 
Partner, Greylock Partners  Penny S. Pritzker 4 
Founder and Chairman, PSP Partners, 
LLC John W. Thompson 3,4 
Partner, Lightspeed Venture Partners  
      
Hugh F. Johnston 1 
Vice Chairman and Executive  Vice 
President and Chief Financial Officer, 
PepsiCo, Inc.  Carlos A. Rodriguez 1,2 
Executive Chair, ADP, Inc.  Emma N. Walmsley 2,4 
Chief Executive Officer, GSK plc  
      
Teri L. List 1,3 
Former Executive Vice President and 
Chief Financial Officer, The Ga p, Inc.  Charles W. Scharf 2,3 
Chief Executive Officer and President, 
Wells Fargo  & Company  Padmasree Warrior 2 
Founder, President and Chief Executive 
Officer, Fable Group, Inc.  
Board Committees  
1. Audit Committee  
2. Compensation Committee  
3. Governance and Nominating Committee  
4. Environmental, Social, and Public Policy Committee  
EXECUTIVE OFFICERS  
  
Satya  Nadella  
Chairman and Chief Executive Officer  Amy E. Hood  
Executive Vice President and Chief Financial 
Officer  
    
Judson B. Althoff  
Executive Vice President and Chief Commercial Officer  Bradford L. Smith  
Vice Chair and President  
    
Christopher C. Capossela  
Executive Vice President and Chief Marketing Officer  Christopher D. Young  
Executive Vice President, Business Development, 
Strategy, and Ventures  
    
Kathleen T. Hogan  
Executive Vice President and Chief Human Resources Officer


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83 INVESTOR RELATIONS  
 Investor Relations  
You can contact Microsoft Investor Relations by calling 
toll-free at (800) 285 -7772 or outside the United States, 
call (425) 706 -4400. We can be contacted between the 
hours of 9:00 a.m. to 5:00 p.m. Pacific Time to answer 
investment -oriented questions abou t Microsoft.  
For access to additional financial information, visit the 
Investor Relations website online at:  
www.microsoft.com/investor  
Our e -mail is msft@microsoft.com  
Our mailing address is:  
Investor Relations  
Microsoft Corporation  
One Microsoft Way  
Redmond, Washington 98052 -6399  
Attending the Annual Meeting  
The 2023 Annual Shareholders Meeting will be held 
as a virtual -only meeting . Any shareholder can join the 
Annual Meeting, while shareholders of record as of 
September  29 2023, will be able to vote and submit 
questions during the meeting.  
Date: Thursday, December  7, 2023  
Time: 8:30 a.m. Pacific Time  
Virtual Shareholder Meeting:   
www.virtualshareholdermeeting.com/MSFT23  
Submit Your Question  
We invite you to submit any questions via the proxy voting 
site at www.proxyvote.com . We will include as many of 
your questions as possible during the Q&A session of the 
meeting and will pro vide answers to questions on the 
Microsoft Investor Relations website under the Annual 
Meeting page.  
Registered Shareholder Services  
Computershare, our transfer agent, can help you with a 
variety of shareholder related services including:  
• Change of ad dress  
• Lost stock certificates  
• Transfer of stock to another person  
• Additional administrative services  
  
Computershare also administers a direct stock purchase 
plan and a dividend reinvestment program for the 
company.  Contact Computershare directly to find out more about 
these services and programs at 800 -285-7772, option 1, 
or visit online at:  
https://www.computershare.com/Microsoft   
You can e -mail the transfer agent at:  
web.queries@computershare.com


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web.queries@computershare.com  
You can also se nd mail to the transfer agent at:  
Computershare  
P.O. Box 505000  
Louisville, KY 40233 -5000  
Shareholders can sign up for electronic alerts to access 
the annual report and proxy statement online. The service 
gets you the information you need faster and al so gives 
you the power and convenience of online proxy voting. To 
sign up for this free service, visit the Annual Report site 
on the Investor Relations website at: 
http://www.microsoft.com/investor/AnnualReports/default
.aspx   
Environmental, Social, and Gov ernance (ESG)/Corporate 
Social Responsibility  
Many of our shareholders are focused on environmental, 
social, and governance topics. To meet the expectations 
of our stakeholders and to and maintain their trust, we are 
committed to conducting our business i n ways that are 
principled, transparent, and accountable. Microsoft has 
made a broad range of environmental and social 
commitments to make a significant positive impact on 
important global issues. Microsoft’s Board of Directors 
provides insight, feedback, and oversight across a broad 
range of environmental and social matters. In particular, 
among the responsibilities of the Board’s Environmental, 
Social, and Public Policy Committee is to review and 
provide guidance to the Board and management about 
the Comp any’s policies and programs that relate to 
corporate social responsibility.  
For more about Microsoft’s CSR commitments and 
performance, please visit:  
www.microsoft.com/transparency .


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UNITED ST ATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________
FORM 10-K
__________________________
(Mark One)
☒    ANNUAL  REPOR T PURSUANT  TO SECTION 13 OR 15(d) OF  THE SECURITIES EXCHANGE ACT  OF 1934
For the fiscal year  ended December  31, 2023
or
☐    TRANSITION REPOR T PURSUANT  TO SECTION 13 OR 15(d) OF  THE SECURITIES EXCHANGE ACT  OF 1934
For the transition period fr om            to            
Commission File Number: 001-35551
__________________________
Meta Platforms, Inc.
(Exact name of r egistrant as specified in its charter)
__________________________
Delawar e 20-1665019
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)
1 Meta Way, Menlo Park, California 94025
(Address of principal executive offices and Zip Code)
(650) 543-4800
(Registrant's telephone number, including area code)
__________________________
Securities r egister ed pursuant to Section 12(b) of the Act:
Title of each class Trading symbol(s) Name of each exchange on which registered
Class A Common Stock, $0.000006 par value MET A The Nasdaq Stock Market LLC
Securities r egister ed pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ☒   No   ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ☐  No  ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (Exchange Act) during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒     No  ☐


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Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒     No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions
of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒ Accelerated filer ☐
Non-accelerated filer ☐ Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards
provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section
404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to
previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers
during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐     No   ☒
The aggregate market value of the voting and non-voting stock held by non-affiliates of the registrant as of June 30, 2023, the last business day of the registrant's most recently completed second fiscal


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quarter, was $637 billion based upon the closing price reported for such date on the Nasdaq Global Select Market. On January 26, 2024, the registrant had 2,200,048,907 shares of Class A common
stock and 349,356,199 shares of Class B common stock outstanding.


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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement for the 2024 Annual Meeting of Stockholders are incorporated herein by reference in Part III of this Annual Report on Form 10-K to the extent stated
herein. Such proxy statement will be filed with the Securities and Exchange Commission within 120 days of the registrant's fiscal year ended December 31, 2023.


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Meta Platforms, Inc.
Form 10-K
TABLE OF CONTENTS
Page
Note About Forward-Looking Statements 3
Limitations of Key Metrics and Other Data 4
PART I
Item 1. Business 7
Item 1A. Risk Factors 15
Item 1B. Unresolved Staff Comments 51
Item 1C. Cybersecurity 51
Item 2. Properties 52
Item 3. Legal Proceedings 52
Item 4. Mine Safety Disclosures 56
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 57
Item 6. [Reserved] 58
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 59
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 82
Item 8. Financial Statements and Supplementary Data 84
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 126
Item 9A. Controls and Procedures 126
Item 9B. Other Information 126
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 126
PART III
Item 10. Directors, Executive Officers and Corporate Governance 127
Item 11. Executive Compensation 127
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 127
Item 13. Certain Relationships and Related Transactions, and Director Independence 127
Item 14. Principal Accountant Fees and Services 127
PART IV
Item 15. Exhibit and Financial Statement Schedules 128
Item 16. Form 10-K Summary 130
Signatures 131
2


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Table of Contents
NOTE ABOUT FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements. All statements contained in this Annual Report on Form 10-K other than
statements of historical fact, including statements regarding our future results of operations and financial position, our business strategy and plans, and our
objectives for future operations, are forward-looking statements. The words "believe," "may," "will," "estimate," "continue," "anticipate," "intend," "expect,"
and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current
expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-
term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties
and assumptions, including those described in Part I, Item 1A, "Risk Factors" in this Annual Report on Form 10-K. Moreover, we operate in a very competitive
and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact
of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in
any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this Annual
Report on Form 10-K may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking
statements.
We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given
these risks and uncertainties, readers are cautioned not to place undue reliance on such forward‑looking statements.
Unless expressly indicated or the context requires otherwise, the terms "Meta," "company," "we," "us," and "our" in this document refer to Meta
Platforms, Inc., a Delaware corporation, and, where appropriate, its subsidiaries. The term "Family" refers to our Facebook, Instagram, Messenger, and
WhatsApp products. For references to accessing Meta's products on the "web" or via a "website," such terms refer to accessing such products on personal


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computers. For references to accessing Meta's products on "mobile," such term refers to accessing such products via a mobile application or via a mobile-
optimized version of our websites such as m.facebook.com, whether on a mobile phone or tablet.
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LIMITATIONS OF KEY METRICS AND OTHER DATA
The numbers for our key metrics are calculated using internal company data based on the activity of user accounts. We report our estimates of the
numbers of our daily active people (DAP), monthly active people (MAP), and average revenue per person (ARPP) (collectively, our "Family metrics") based
on the activity of users who visited at least one of Facebook, Instagram, Messenger, and WhatsApp (collectively, our "Family" of products) during the
applicable period of measurement. We have historically reported the numbers of our daily active users (DAUs), monthly active users (MAUs), and average
revenue per user (ARPU) (collectively, our "Facebook metrics") based on user activity only on Facebook and Messenger and not on our other products. We
believe our Family metrics better reflect the size of our community and the fact that many people are using more than one of our products. Beginning with our
Quarterly Report on Form 10-Q to be filed for the first quarter of 2024, we will no longer report DAUs, MAUs, ARPU, and MAP in our periodic reports filed
with the Securities and Exchange Commission, but will continue reporting DAP and ARPP (calculated based on DAP).
While these numbers are based on what we believe to be reasonable estimates of our user base for the applicable period of measurement, there are
inherent challenges in measuring usage of our products across large online and mobile populations around the world. The methodologies used to measure these
metrics require significant judgment and are also susceptible to algorithm or other technical errors. In addition, we are continually seeking to improve our
estimates of our user base, and such estimates may change due to improvements or changes in our methodology. We regularly review our processes for
calculating these metrics, and from time to time we discover inaccuracies in our metrics or make adjustments to improve their accuracy, which can result in
adjustments to our historical metrics. Our ability to recalculate our historical metrics may be impacted by data limitations or other factors that require us to
apply different methodologies for such adjustments. We generally do not intend to update previously disclosed Family metrics for any such inaccuracies or
adjustments that are within the error margins disclosed below.
In addition, our Family metrics and Facebook metrics estimates will differ from estimates published by third parties due to differences in methodology


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or other factors such as data limitations or other challenges in measuring large online and mobile populations. For example, our Family metrics estimates in
some instances exceed estimates of addressable online and mobile populations that are based on data published by third parties.
Family Metrics
Many people in our community have user accounts on more than one of our products, and some people have multiple user accounts within an individual
product. Accordingly, for our Family metrics, we do not seek to count the total number of user accounts across our products because we believe that would not
reflect the actual size of our community. Rather, our Family metrics represent our estimates of the number of unique people using at least one of Facebook,
Instagram, Messenger, and WhatsApp. We do not require people to use a common identifier or link their accounts to use multiple products in our Family, and
therefore must seek to attribute multiple user accounts within and across products to individual people. To calculate these metrics, we rely upon complex
techniques, algorithms and machine learning models that seek to count the individual people behind user accounts, including by matching multiple user
accounts within an individual product and across multiple products when we believe they are attributable to a single person, and counting such group of
accounts as one person. These techniques and models require significant judgment, are subject to data and other limitations discussed below, and inherently are
subject to statistical variances and uncertainties. We estimate the potential error in our Family metrics primarily based on user survey data, which itself is
subject to error as well. While we expect the error margin for our Family metrics to vary from period to period, we estimate that such margin generally will be
approximately 3% of our worldwide MAP. At our scale, it is very difficult to attribute multiple user accounts within and across products to individual people,
and it is possible that the actual numbers of unique people using our products may vary significantly from our estimates, potentially beyond our estimated error
margins. As a result, it is also possible that our Family metrics may indicate changes or trends in user numbers that do not match actual changes or trends.
To calculate our estimates of Family DAP and MAP, we currently use a series of machine learning models that are developed based on internal reviews
of limited samples of user accounts and calibrated against user survey data. We apply significant judgment in designing these models and calculating these
estimates. For example, to match user accounts within individual products and across multiple products, we use data signals such as similar device information,


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IP addresses, and user names. We also calibrate our models against data from periodic user surveys of varying sizes and frequency across our products, which
are inherently subject to error. The timing and results of such user surveys have in the past contributed, and may in the future contribute, to changes in our
reported Family metrics from period to period. In addition, our data limitations may affect our understanding of certain details of our business and increase the
risk of error for our Family metrics estimates.
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Our techniques and models rely on a variety of data signals from different products, and we rely on more limited data signals for some products compared to
others. For example, as a result of limited visibility into encrypted products, we have fewer data signals from WhatsApp user accounts and primarily rely on
phone numbers and device information to match WhatsApp user accounts with accounts on our other products. Any loss of access to data signals we use in our
process for calculating Family metrics, whether as a result of our own product decisions, actions by third-party browser or mobile platforms, regulatory or
legislative requirements, or other factors, also may impact the stability or accuracy of our reported Family metrics, as well as our ability to report these metrics
at all. Our estimates of Family metrics also may change as our methodologies evolve, including through the application of new data signals or technologies,
product changes, or other improvements in our user surveys, algorithms, or machine learning that may improve our ability to match accounts within and across
our products or otherwise evaluate the broad population of our users. In addition, such evolution may allow us to identify previously undetected violating
accounts (as defined below).
We regularly evaluate our Family metrics to estimate the percentage of our MAP consisting solely of "violating" accounts. We define "violating"
accounts as accounts which we believe are intended to be used for purposes that violate our terms of service, including bots and spam. In the fourth quarter of
2023, we estimated that approximately 3% of our worldwide MAP consisted solely of violating accounts. Such estimation is based on an internal review of a
limited sample of accounts, and we apply significant judgment in making this determination. For example, we look for account information and behaviors
associated with Facebook and Instagram accounts that appear to be inauthentic to the reviewers, but we have limited visibility into WhatsApp user activity due
to encryption. In addition, if we believe an individual person has one or more violating accounts, we do not include such person in our violating accounts
estimation as long as we believe they have one account that does not constitute a violating account. From time to time, we disable certain user accounts, make
product changes, or take other actions to reduce the number of violating accounts among our users, which may also reduce our DAP and MAP estimates in a
particular period. Violating accounts are very difficult to measure at our scale, and it is possible that the actual number of violating accounts may vary


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significantly from our estimates.
The numbers of Family DAP and MAP discussed in this Annual Report on Form 10-K, as well as ARPP, do not include users on our other products,
unless they would otherwise qualify as DAP or MAP, respectively, based on their other activities on our Family products.
Facebook Metrics
We regularly evaluate our Facebook metrics to estimate the number of "duplicate" and "false" accounts among our MAUs. A duplicate account is one
that a user maintains in addition to his or her principal account. We divide "false" accounts into two categories: (1) user-misclassified accounts, where users
have created personal profiles for a business, organization, or non-human entity such as a pet (such entities are permitted on Facebook using a Page rather than
a personal profile under our terms of service); and (2) violating accounts, which represent user profiles that we believe are intended to be used for purposes that
violate our terms of service, such as bots and spam. The estimates of duplicate and false accounts are based on an internal review of a limited sample of
accounts, and we apply significant judgment in making this determination. For example, to identify duplicate accounts we use data signals such as identical IP
addresses and similar user names, and to identify false accounts we look for names that appear to be fake or other behavior that appears inauthentic to the
reviewers. Any loss of access to data signals we use in this process, whether as a result of our own product decisions, actions by third-party browser or mobile
platforms, regulatory or legislative requirements, or other factors, also may impact the stability or accuracy of our estimates of duplicate and false accounts.
Our estimates also may change as our methodologies evolve, including through the application of new data signals or technologies or product changes that may
allow us to identify previously undetected duplicate or false accounts and may improve our ability to evaluate a broader population of our users. Duplicate and
false accounts are very difficult to measure at our scale, and it is possible that the actual number of duplicate and false accounts may vary significantly from our
estimates.
In the fourth quarter of 2023, we estimated that duplicate accounts may have represented approximately 10% of our worldwide MAUs. We believe the
percentage of duplicate accounts is meaningfully higher in developing markets such as the Philippines and Vietnam, as compared to more developed markets.


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In the fourth quarter of 2023, we estimated that false accounts may have represented approximately 4% of our worldwide MAUs. Our estimation of false
accounts can vary as a result of episodic spikes in the creation of such accounts, which we have seen originate more frequently in specific countries such as
Indonesia, Vietnam, and Nigeria. From time to time, we disable certain user accounts, make product changes, or take other actions to reduce the number of
duplicate or false accounts among our users, which may also reduce our DAU and MAU estimates in a particular period.
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The numbers of DAUs and MAUs discussed in this Annual Report on Form 10-K, as well as ARPU, do not include users on Instagram, WhatsApp, or
our other products, unless they would otherwise qualify as DAUs or MAUs, respectively, based on their other activities on Facebook.
User Geography
Our data regarding the geographic location of our users is estimated based on a number of factors, such as the user's IP address and self-disclosed
location. These factors may not always accurately reflect the user's actual location. For example, a user may appear to be accessing Facebook from the location
of the proxy server that the user connects to rather than from the user's actual location. The methodologies used to measure our metrics are also susceptible to
algorithm or other technical errors, and our estimates for revenue by user location and revenue by user device are also affected by these factors.
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PART I
Item 1.Business
Overview
Our mission is to give people the power to build community and bring the world closer together.
All of our products, including our apps, share the vision of helping to bring the metaverse to life. We build technology that helps people connect and
share, find communities, and grow businesses. Our products enable people to connect and share with friends and family through mobile devices, personal
computers, virtual reality (VR) and mixed reality (MR) headsets, and wearables. We also help people discover and learn about what is going on in the world
around them, enable people to share their experiences, ideas, photos and videos, and other activities with audiences ranging from their closest family members
and friends to the public at large, and stay connected everywhere by accessing our products. Meta is moving our offerings beyond 2D screens toward
immersive experiences like augmented and virtual reality to help build the metaverse, which we believe is the next evolution in social technology. Our vision
for the metaverse does not center on any single product, but rather an entire ecosystem of experiences, devices, and new technologies. While the metaverse is in
the very early stages of its development, we believe it will become the next computing platform and the future of social interaction. Across our work, we are
innovating in artificial intelligence (AI) technologies to build new experiences that help make our platform more social, useful, and immersive.
We report financial results for two segments: Family of Apps (FoA) and Reality Labs (RL). Currently, we generate substantially all of our revenue from
selling advertising placements on our family of apps to marketers, which is reflected in FoA. Ads on our platform enable marketers to reach people across a
range of marketing objectives, such as generating leads or driving awareness. Marketers purchase ads that can appear in multiple places including on Facebook,
Instagram, Messenger, and third-party applications and websites. RL generates revenue from sales of consumer hardware products, software, and content.
We invest in our business based on our company priorities. In 2024, we intend to focus on six key investment areas: AI, the metaverse, our discovery
engine, monetization of our products and services, regulatory readiness, and enhancing developer efficiency to build, iterate, and optimize products quickly.
Our AI investments support initiatives across our products and services, helping power the systems that rank content in our apps, our discovery engine that


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recommends relevant content, the tools advertisers use to reach customers, the development of new generative AI experiences, and the tools that make our
product development more efficient and productive.
The majority of our investments are directed toward developing our family of apps. In 2023, 80% of our total costs and expenses were recognized in
FoA and 20% were recognized in RL. Our FoA investments were $70.13 billion in 2023 and include expenses relating to headcount, data centers and technical
infrastructure as part of our efforts to develop our apps and our advertising services. We are also making significant investments in our metaverse efforts,
including developing virtual and augmented reality devices, software for social platforms, neural interfaces, and other foundational technologies. Our total RL
investments were $18.02 billion in 2023 and include expenses relating to headcount and technology development across these efforts. These are fundamentally
new technologies that we expect will evolve as the metaverse ecosystem develops, and many products for the metaverse may only be fully realized in the next
decade. Although it is inherently difficult to predict when and how the metaverse ecosystem will develop, we expect our RL segment to continue to operate at a
loss for the foreseeable future, and our ability to support our metaverse efforts is dependent on generating sufficient profits from other areas of our business. We
expect this will be a complex, evolving, and long-term initiative. We are investing now because we believe this is the next chapter of the internet and will
unlock monetization opportunities for businesses, developers, and creators, including around advertising, hardware, and digital goods.
Family of Apps Products
• Facebook. Facebook helps give people the power to build community and bring the world closer together. It's a place for people to share life's
moments and discuss what's happening, nurture and build relationships, discover and connect to interests, and create economic opportunity. They
can do this through Feed, Reels, Stories, Groups, Marketplace, and more.
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• Instagram. Instagram brings people closer to the people and things they love. Instagram Feed, Stories, Reels, Live, and messaging are places
where people and creators can connect and express themselves through photos, video, and private messaging, and discover and shop from their
favorite businesses.
• Messenger. Messenger is a simple yet powerful messaging application for people to connect with friends, family, communities, and businesses
across platforms and devices through text, audio, and video calls.
• Threads. Threads is an application for text-based updates and public conversations, where communities come together to discuss topics of interest.
People can connect directly with their favorite creators and others who love the same things or build a loyal following of their own to share their
ideas, opinions, and creativity with the world.
• WhatsApp. WhatsApp is a simple, reliable, and secure messaging application that is used by people and businesses around the world to
communicate and transact in a private way. Within WhatsApp we launched WhatsApp Channels, a one-to-many broadcast service designed to help
people follow information from people and organizations that are important to them.
Reality Labs Products
Many of our metaverse investments are directed toward long-term, cutting-edge research and development for products that are not on the market today
and may only be fully realized in the next decade. This includes exploring new technologies such as neural interfaces using electromyography, which lets
people control their devices using neuromuscular signals, as well as innovations in AI and hardware to help build next-generation interfaces. In the near term,
we are continuing to develop early metaverse experiences through Reality Labs products that help people feel connected, anytime, anywhere.
Our current product offerings in VR include our Meta Quest devices, as well as software and content available through the Meta Quest Store, which
enable a range of social experiences that allow people to defy physical distance while engaging in gaming, fitness, entertainment, and more. For example, Meta
Horizon Worlds is a social platform where people can interact with friends, meet new people, play games, and attend virtual events.
To drive greater adoption and acceptance of VR we have also introduced MR capabilities, which allow users to experience the immersion and presence
of VR while still being grounded in the physical world, through our Meta Quest Pro and Meta Quest 3 devices.
We have continued to advance our augmented reality (AR) roadmap to include offerings such as the Ray-Ban Meta smart glasses, which feature Meta


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AI, our advanced conversational assistant, as well as offer the ability to livestream video and let people stay more present through hands-free interaction. We
also offer Meta Spark, a platform that allows creators and businesses to build AR experiences that bring the digital and physical worlds together in our apps.
In general, while all of these investments are part of our long-term initiative to help build the metaverse, our VR and social platform efforts also include
notable shorter-term projects developing specific products and services to go to market, whereas our AR efforts are primarily directed toward longer-term
research and development projects. For example, in 2024, we expect to spend approximately 50% of our Reality Labs operating expenses on our AR initiatives,
approximately 40% on our VR (including MR) initiatives, and approximately 10% on social platforms and other initiatives. We apply significant judgment in
estimating this expense breakdown as there are certain shared costs across product lines, and our expectations are subject to change, including as the metaverse
ecosystem and our business strategies evolve. In particular, we regularly evaluate our product roadmaps and make significant changes as our understanding of
the technological challenges and market landscape and our product ideas and designs evolve.
Competition
Our business is characterized by innovation, rapid change, and disruptive technologies. We compete with companies providing connection, sharing,
discovery, and communication products and services to users online, as well as companies that sell advertising to businesses looking to reach consumers and/or
develop tools and systems for managing and optimizing advertising campaigns. We face significant competition in every aspect of our business, including, but
not limited to, companies that facilitate the ability of users to create, share, communicate, and discover content and information online or
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enable marketers to reach their existing or prospective audiences. We compete to attract, engage, and retain people who use our products, to attract and retain
businesses that use our free or paid business and advertising services, and to attract and retain developers who build compelling applications that integrate with
our products. We also compete with companies that develop and deliver consumer hardware and virtual and augmented reality products and services. We also
expect to face additional competition as we introduce or acquire new products, as our existing products evolve, or as other companies introduce new products
and services, including as part of efforts to develop the metaverse or innovate through the development and application of new technologies such as AI.
Technology
Our product development philosophy centers on continuous innovation in creating and improving products that are social by design, which means that
our products are designed to place people and their social interactions at the core of the product experience. As our user base grows, as engagement with
products like video, VR, and MR increases, and as we deepen our investment in new technologies, our computing needs continue to expand. We have designed
and built our own data centers and key portions of our technical infrastructure, and a substantial portion of our technical infrastructure is also provided by third
parties. Our ability to provide and continue to innovate our products and services depends on the continued availability of components, power, and network
capacity.
We make significant investments in technology both to improve our existing products and services and to develop new ones, as well as for our marketers
and developers. We are also investing in protecting the security, privacy, and integrity of our platform by investing in both people and technology to strengthen
our systems against abuse. Across all of these efforts, we are making significant investments in AI initiatives, including generative AI, to, among other things,
recommend relevant content across our products through our AI-powered discovery engine, enhance our advertising tools and improve our ad delivery,
targeting, and measurement capabilities, and to develop new products as well as new features for existing products.
Sales and Operations
The majority of our marketers use our self-service ad platform to launch and manage their advertising campaigns. We also have a global sales force that
is focused on attracting and retaining advertisers and providing support to them throughout the stages of the marketing cycle from pre-purchase decision-
making to real-time optimizations to post-campaign analytics. We work directly with these advertisers, as well as through advertising agencies and resellers.


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We operate offices in approximately 90 cities around the globe, the majority of which have a sales presence. We also invest in and rely on self-service tools to
provide direct customer support to our users and partners.
For our RL products, our sales and operations efforts utilize third-party sales channels such as retailers, resellers, and our direct-to-consumer channel,
Meta.com. These efforts are focused on driving consumer and enterprise sales and adoption of our Meta Quest portfolio of products and Ray-Ban Meta smart
glasses.
Marketing
Historically, our communities have generally grown organically with people inviting their friends to connect with them, supported by internal efforts to
stimulate awareness and interest. In addition, we have invested and will continue to invest in marketing our products and services to grow our brand and help
build community around the world.
Intellectual Property
To establish and protect our proprietary rights, we rely on a combination of patents, trademarks, copyrights, trade secrets, including know-how, license
agreements, confidentiality procedures, non-disclosure agreements with third parties, employee disclosure and invention assignment agreements, and other
contractual rights. In addition, to further protect our proprietary rights, from time to time we have purchased patents and patent applications from third parties.
We do not believe that our proprietary technology is dependent on any single patent or copyright or groups of related patents or copyrights. We believe the
duration of our patents is adequate relative to the expected lives of our products.
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Government Regulation
We are subject to a variety of laws and regulations in the United States and abroad that involve matters central to our business, many of which are still
evolving and being tested in courts, and could be interpreted in ways that could harm our business. These laws and regulations involve matters including
privacy, data use, data protection and personal information, the provision of our services to younger users, biometrics, encryption, rights of publicity, content,
integrity, intellectual property, advertising, marketing, distribution, data security, data retention and deletion, data localization and storage, data disclosure, AI
and machine learning, electronic contracts and other communications, competition, protection of minors, consumer protection, civil rights, accessibility,
telecommunications, product liability, e-commerce, taxation, economic or other trade controls including sanctions, anti-corruption and political law
compliance, securities law compliance, and online payment services. Foreign data protection, privacy, content, competition, consumer protection, and other
laws and regulations can impose different obligations or be more restrictive than those in the United States, and create the potential for significant fines to be
imposed.
These U.S. federal and state, EU, and other international laws and regulations, which in some cases can be enforced by private parties in addition to
government entities, are constantly evolving and can be subject to significant change. As a result, the application, interpretation, and enforcement of these laws
and regulations are often uncertain, particularly in the new and rapidly evolving industry in which we operate, and may be interpreted and applied
inconsistently from jurisdiction to jurisdiction and inconsistently with our current policies and practices. For example, regulatory or legislative actions or
litigation concerning the manner in which we display content to our users, moderate content, provide our services to younger users, or are able to use data in
various ways, including for advertising, or otherwise relating to content that is made available on our products, could adversely affect our financial results,
including by imposing significant fines that increasingly may be calculated based on global revenue. In the United States, in 2023, the U.S. Supreme Court
heard oral argument in a matter in which the scope of the protections available to online platforms under Section 230 of the Communications Decency Act
(Section 230) was at issue, but it ultimately declined to address Section 230 in its decision. In addition, there have been, and continue to be, various efforts to


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remove or restrict the scope of the protections available to online platforms under Section 230, and any such changes may increase our costs or require
significant changes to our products, business practices, or operations, which could adversely affect our business and financial results.
We are also subject to evolving laws and regulations that dictate whether, how, and under what circumstances we can transfer, process or receive certain
data that is critical to our operations, including data shared between countries or regions in which we operate and data shared among our products and services.
If we are unable to transfer data between and among countries and regions in which we operate, or if we are restricted from sharing data among our products
and services, it could affect our ability to provide our services, the manner in which we provide our services or our ability to target ads, which could adversely
affect our financial results. For example, the Privacy Shield, a transfer framework we relied upon for data transferred from the European Union to the United
States, was invalidated in July 2020 by the Court of Justice of the European Union (CJEU). In addition, the other bases upon which Meta relies to transfer such
data, such as Standard Contractual Clauses (SCCs), have been subjected to regulatory and judicial scrutiny. For example, although the CJEU upheld the
validity of SCCs as a basis to transfer user data from the European Union to the United States in July 2020, on May 12, 2023, the Irish Data Protection
Committee (IDPC) issued a Final Decision concluding that Meta Platforms Ireland's reliance on SCCs in respect of certain transfers of European Economic
Area (EEA) Facebook user data was not in compliance with the European General Data Protection Regulation (GDPR). The IDPC issued an administrative fine
of EUR €1.2 billion as well as corrective orders requiring Meta Platforms Ireland to suspend the relevant transfers and to bring its processing operations into
compliance with Chapter V GDPR by ceasing the unlawful processing, including storage, of such data in the United States. We are appealing this decision and
the corrective orders are currently subject to an interim stay from the Irish High Court. Separately, on March 25, 2022, the European Union and United States
announced that they had reached an agreement in principle on a new EU-U.S. Data Privacy Framework (EU-U.S. DPF). On October 7, 2022, President Biden


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signed the Executive Order on Enhancing Safeguards for United States Signals Intelligence Activities (E.O.), and on June 30, 2023, the European Union and
the three additional countries making up the EEA were designated by the United States Attorney General as a "qualifying state" under Section 3(f) of the E.O.
On July 10, 2023, the European Commission adopted an adequacy decision in relation to the United States. The adequacy decision concludes that the United
States ensures an adequate level of protection for personal data transferred from the European Union to organizations in the United States that are included in
the "Data Privacy Framework List," maintained and made publicly available by the United States Department of Commerce pursuant to the EU-U.S. DPF. The
implementation of the EU-U.S. DPF and the adequacy decision are important and welcome milestones, and we are implementing steps to comply with the
above corrective orders following engagement with the IDPC. If we are required to take additional steps to comply with the corrective orders, this could
increase the cost and complexity of delivering our products and services in Europe. Furthermore, the EU-U.S. DPF replaces
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two prior adequacy frameworks which were invalidated by the CJEU. A further invalidation of the EU-U.S. DPF by the CJEU could create considerable
uncertainty and lead to us being unable to offer a number of our most significant products and services, including Facebook and Instagram, in Europe, which
would materially and adversely affect our business, financial condition, and results of operations.
We have been subject to other significant legislative and regulatory developments, which together with proposed or new legislation and regulations
could significantly affect our business in the future. For example, we have implemented a number of product changes and controls as a result of requirements
under the GDPR, and may implement additional changes in the future. The GDPR also requires submission of personal data breach notifications to our lead
European Union privacy regulator, the IDPC, and includes significant penalties for non-compliance with the notification obligation as well as other
requirements of the regulation. The interpretation of the GDPR is still evolving, including through decisions of the CJEU, and draft decisions in investigations
by the IDPC are subject to review by other European privacy regulators as part of the GDPR's consistency mechanism, which may lead to significant changes
in the final outcome of such investigations. As a result, the interpretation and enforcement of the GDPR, as well as the imposition and amount of penalties for
non-compliance, are subject to significant uncertainty, and as it evolves, could potentially have a negative impact on our business and/or our operations. In
addition, Brazil, the United Kingdom, and other countries have enacted similar data protection regulations imposing data privacy-related requirements on
products and services offered to users in their respective jurisdictions. The California Consumer Privacy Act, as amended by the California Privacy Rights Act,
and similar laws recently enacted by other states also establish certain transparency rules and create certain data privacy rights for users. Some states have also
proposed or enacted laws specifically focused on the privacy rights and controls for users under 18 years old and their parents or guardians. Like
comprehensive privacy laws, these laws are evolving and subject to interpretation, and may restrict our ability to offer certain products and services provided to
all or certain cohorts of users in those states, adversely affecting our advertising business. In addition, the European Union's ePrivacy Directive and national
implementation laws impose additional limitations on the use of data across messaging products and include significant penalties for non-compliance. Changes


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to our products or business practices as a result of these or similar developments have adversely affected, and may in the future adversely affect, our advertising
business. For example, in response to regulatory developments in Europe, we announced plans to change the legal basis for behavioral advertising on Facebook
and Instagram in the EU, EEA, and Switzerland from "legitimate interests" to "consent," and in November 2023 we began offering users in the region a
"subscription for no ads" alternative. We are continuing to engage with regulators on our new consent model, including regarding compliance with
requirements under the GDPR, Digital Markets Act (DMA), and EU consumer laws. These or any similar developments in the future may negatively impact
our user growth and engagement, revenue, and financial results. Similarly, there are a number of legislative proposals or recently enacted laws in the European
Union, the United States, at both the federal and state level, as well as other jurisdictions that could impose new obligations or limitations in areas affecting our
business. For example, the DMA in the European Union imposes new restrictions and requirements on companies like ours, including in areas such as the
combination of data across services, mergers and acquisitions, and product design. The DMA also includes significant penalties for non-compliance, and its key
requirements will be enforceable against designated gatekeeper companies beginning in March 2024. The DMA has caused, and may in the future cause, us to
incur significant compliance costs and make changes to our products or business practices. The requirements under the DMA will likely be subject to further
interpretation and regulatory engagement. Pending or future proposals to modify competition laws in the United States and other jurisdictions could have
similar effects. We are also subject to content-related legislation such as the Digital Services Act (DSA) in the European Union, which started to apply to our
business as of August 2023, imposes certain restrictions and requirements for our products and services, and subjects us to increased compliance costs. The
DSA also includes significant penalties for non-compliance. In addition, some countries, such as India and Turkey, are considering or have passed legislation
implementing data protection requirements, new competition requirements, or requiring local storage and processing of data or similar requirements that could
require substantial changes to our products, increase the cost and complexity of delivering our services, cause us to cease the offering of our products and


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services in certain countries, and/or result in fines or other penalties. New legislation or regulatory decisions that restrict our ability to collect and use
information about minors may also result in limitations on our advertising services or our ability to offer products and services to minors in certain
jurisdictions.
We are, and expect to continue to be, the subject of investigations, inquiries, data requests, requests for information, actions, and audits by government
authorities and regulators in the United States, Europe, and around the world, particularly in the areas of privacy, data use and data protection, including with
respect to processing of sensitive data, data from third parties, data for advertising purposes, data security, minors, safety, law enforcement, consumer
protection, civil rights, content moderation, use of our platform for illegal, illicit, or otherwise objectionable activity, competition, AI, and machine learning.
We are also currently, and may in the future be, subject to regulatory orders or consent decrees, including the modified consent order we entered into with the
U.S. Federal Trade Commission (FTC), which took effect in April 2020 and,
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among other things, required us to significantly enhance our practices and processes for privacy compliance and oversight. The FTC also continues to monitor
us and our compliance with the modified consent order and initiated an administrative proceeding against us, which we are challenging, that alleges deficient
compliance and violations of the Children's Online Privacy Protection Act (COPPA), the COPPA Rule, and Section 5 of the Federal Trade Commission Act and
seeks changes to our business. If we are unsuccessful in our challenge to the FTC's action and the agency imposes its proposed order in its current form, we
would be subject to significant limitations, including on our ability to launch new and modified products or use data of users under 18 years old. Orders issued
by, or inquiries or enforcement actions initiated by, government or regulatory authorities could cause us to incur substantial costs, expose us to civil and
criminal liability (including liability for our personnel) or penalties (including substantial monetary remedies), interrupt or require us to change our business
practices in a manner materially adverse to our business (including changes to our products or user data practices), result in negative publicity and reputational
harm, divert resources and the time and attention of management from our business, or subject us to other structural or behavioral remedies that adversely
affect our business.
For additional information about government regulation applicable to our business, see Part I, Item 1A, "Risk Factors" in this Annual Report on Form
10-K.
Human Capital
At Meta, everything we do is about helping people feel connected and closer, and we are proud of our unique company culture.
We had a global workforce of 67,317 employees as of December 31, 2023, and we have offices in approximately 90 cities around the world. We are
committed to fostering an enriching environment for our workforce and we are focused on supporting our people in doing the best work of their careers. We
offer competitive compensation and a wide range of benefits, including many learning and development resources, and we work to build a diverse and
inclusive workplace.
Beginning in November 2022, we took a number of steps to reduce our expense base. For example, our cost reduction efforts have included scaling back
budgets, reducing company perks, shrinking our real estate footprint, and employee layoffs and restructurings. We make it a priority to treat outgoing


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employees with respect and provide a generous severance package. For U.S. employees, that includes severance of 16 weeks of base pay plus two additional
weeks for every year of service, payment for all remaining paid time off, restricted stock unit vesting through their last day on payroll, health insurance,
coverage of the cost of healthcare for employees and their families for six months, career services that included three months of career support with an external
vendor and early access to unpublished job leads, immigration support that included dedicated immigration specialists to help guide employees based on their
needs. We offer similar support for outgoing employees outside of the United States while taking into account local employment laws.
Employee Learning and Development
We value our investment in growing and keeping a highly skilled workforce. We aim to provide all of our employees with regular performance reviews
twice a year as we believe it is an important part of how we support their growth and career development while also recognizing and rewarding their impact at
Meta. We also offer career development opportunities and work experience programs that extend beyond the physical and virtual classroom. To do this, we
utilize various learning modalities, such as live virtual and in-person learning experiences, on-demand e-learning, self-service resources, learning communities,
and coaching engagements.
The Pulse of Our Workforce
Each year, we conduct company-wide employee surveys to help us understand how employees feel about working at Meta and what we can do to
improve their experience. Our surveys help us measure company, manager, team, and personal experience over time. Further, our more frequent surveys, such
as those that have been administered daily to an ongoing random sample of employees, allow us to measure real-time sentiment around emerging events and
company changes. These surveys are designed to invite feedback and actionable suggestions, inform decisions, and drive change across the company. In 2024,
we expect to update our listening strategy and product capabilities, based on feedback from key groups, to further improve actionability and impact.
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Compensation, Benefits, Health, and Well-being
We offer competitive compensation to attract and retain the best people, and we help care for our people so they can focus on our mission. Our
employees' total compensation package includes market-competitive salary, bonuses or sales incentives, and equity. We generally offer full-time employees
equity at the time of hire and through annual equity grants because we want them to be owners of the company and committed to our long-term success. We
have conducted pay equity analyses for many years, and continue to be committed to pay equity. For example, in July 2023, we announced that our analyses
confirm that we continue to have pay equity across genders globally and by race in the United States for people in similar jobs, accounting for factors such as
location, role, and level.
Through Life@ Meta, our holistic approach to benefits, we continue to provide our employees and their dependents with resources to help them thrive.
We offer a wide range of benefits across areas such as health, family, finance, community, and time away, including family building benefits, family care
resources, retirement savings plans, access to legal services, Meta Resource Groups to build community at Meta, and health and well-being benefits.
Our health and well-being programs are designed to give employees a choice of flexible benefits to help them reach their personal well-being goals. Our
programs are tailored to help boost employee physical and mental health, create financial peace of mind, provide support for families, and help employees
build a strong community. Programs are designed and funded to support needs like autism care, cancer care, transgender services, holistic well-being, including
mental health programs and retirement savings, which represent a few of the ways we support our employees and their dependents.
Diverse and Inclusive Workplace
We work to build a diverse and inclusive workplace where we can leverage our collective cognitive diversity to build the best products and make the
best decisions for the global community we serve.
In our 2023 Responsible Business Practices Report, we published our global diversity and U.S. ethnic diversity workforce data. As of December 31,
2022, our global employee base was composed of 45.4% underrepresented people, with 47.9% underrepresented people in the U.S., and 43.1% of our leaders


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in the U.S. being people of color. As published in our 2023 Responsible Business Practices Report, people with disabilities now represent 7.2% of our U.S.
workforce, and based on voluntary self-identification, veterans represented 2.3% and members of the LGBTQ+ community make up 9.8% of our U.S.
workforce.
We want our products to work for people around the world and we need to grow and keep the best talent in order to do that. We also remain committed
to having a skilled, inclusive and diverse workforce because we believe cognitive diversity fuels innovation. To aid in this effort, we have taken steps to reduce
bias from our hiring processes and performance management systems, as well as offering learning and development courses for our employees.
Corporate Information
We were incorporated in Delaware in July 2004. We completed our initial public offering in May 2012 and our Class A common stock is currently listed
on the Nasdaq Global Select Market under the symbol "META." Our principal executive offices are located at 1 Meta Way, Menlo Park, California 94025, and
our telephone number is (650) 543-4800.
Meta, the Meta logo, Meta Quest, Meta Horizon, Facebook, FB, Instagram, Oculus, WhatsApp, Reels, and our other registered or common law
trademarks, service marks, or trade names appearing in this Annual Report on Form 10-K are the property of Meta Platforms, Inc. or its affiliates. Other
trademarks, service marks, or trade names appearing in this Annual Report on Form 10‑K are the property of their respective owners.
Available Information
Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed pursuant to
Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (Exchange Act), are filed with the U.S. Securities and Exchange Commission
(SEC). We are subject to the informational requirements of the Exchange Act and file or furnish reports, proxy statements, and other information with the SEC.
Such reports and other information filed by us with the SEC are available free of charge on our website at investor.fb.com when such reports are
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available on the SEC's website. We use our investor.fb.com and about.fb.com/news/ websites as well as Mark Zuckerberg's Facebook Page
(www.facebook.com/zuck), Instagram account (www.instagram.com/zuck), and Threads profile (www.threads.net/zuck) as means of disclosing material non-
public information and for complying with our disclosure obligations under Regulation FD.
The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file
electronically with the SEC at www.sec.gov.
The contents of the websites referred to above are not incorporated into this filing. Further, our references to the URLs for these websites are intended to
be inactive textual references only.
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Item 1A.Risk Factors
Certain factors may have a material adverse effect on our business, financial condition, and results of operations. You should consider carefully the risks and
uncertainties described below, in addition to other information contained in this Annual Report on Form 10-K, including our consolidated financial statements
and related notes. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that
we currently believe are not material, may also become important factors that adversely affect our business. If any of the following risks actually occurs, our
business, financial condition, results of operations, and future prospects could be materially and adversely affected. In that event, the trading price of our
Class A common stock could decline, and you could lose part or all of your investment.
Summary Risk Factors
Our business is subject to a number of risks, including risks that may prevent us from achieving our business objectives or may adversely affect our
business, financial condition, results of operations, cash flows, and prospects. These risks are discussed more fully below and include, but are not limited to,
risks related to:
Risks Related to Our Product Offerings
•our ability to add and retain users and maintain levels of user engagement with our products;
•the loss of, or reduction in spending by, our marketers;
•reduced availability of data signals used by our ad targeting and measurement tools;
•ineffective operation with mobile operating systems or changes in our relationships with mobile operating system partners;
•failure of our new products, or changes to our existing products, to attract or retain users or generate revenue;
Risks Related to Our Business Operations and Financial Results
•our ability to compete effectively;
•fluctuations in our financial results;
•unfavorable media coverage and other risks affecting our ability to maintain and enhance our brands;
•our ability to build, maintain, and scale our technical infrastructure, and risks associated with disruptions in our service, catastrophic events, and
crises;
•operating our business in multiple countries around the world;
•acquisitions and our ability to successfully integrate our acquisitions;
•litigation, including class action lawsuits;
Risks Related to Government Regulation and Enforcement
•government restrictions on access to Facebook or our other products, or other actions that impair our ability to sell advertising, in their countries;


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•complex and evolving U.S. and foreign privacy, data use and data protection, content, competition, consumer protection, and other laws and
regulations, including the General Data Protection Regulation (GDPR), Digital Markets Act (DMA), and Digital Services Act (DSA);
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•the impact of government investigations, enforcement actions, and settlements, including litigation and investigations by privacy, consumer
protection, and competition authorities;
•our ability to comply with regulatory and legislative privacy requirements, including our consent order with the Federal Trade Commission (FTC);
Risks Related to Data, Security, Platform Integrity, and Intellectual Property
•the occurrence of security breaches, improper access to or disclosure of our data or user data, and other cyber incidents, as well as intentional misuse
of our services and other undesirable activity on our platform;
•our ability to obtain, maintain, protect, and enforce our intellectual property rights; and
Risks Related to Ownership of Our Class A Common Stock
•limitations on the ability of holders of our Class A Common Stock to influence corporate matters due to the dual class structure of our common stock
and the control of a majority of the voting power of our outstanding capital stock by our founder, Board Chair, and Chief Executive Officer (CEO).
Risks Related to Our Product Offerings
If we fail to retain existing users or add new users, or if our users decrease their level of engagement with our products, our revenue, financial results, and
business may be significantly harmed.
The size of our active user base and our users' level of engagement across our products are critical to our success. Our financial performance has been
and will continue to be significantly determined by our success in adding, retaining, and engaging active users of our products that deliver ad impressions,
particularly for Facebook and Instagram. We have experienced, and expect to continue to experience, fluctuations and declines in the size of our active user
base in one or more markets from time to time, particularly in markets where we have achieved higher penetration rates. User growth and engagement are also
impacted by a number of other factors, including competitive products and services, such as TikTok, that have reduced some users' engagement with our
products and services, as well as global and regional business, macroeconomic, and geopolitical conditions. For example, the COVID-19 pandemic led to
increases and decreases in the size and engagement of our active user base from period to period at different points during the pandemic. In addition, in
connection with the war in Ukraine, access to Facebook and Instagram was restricted in Russia and these services were then prohibited by the Russian


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government, which contributed to slight decreases in the size of our active user base following the onset of the war. Any future declines in the size of our active
user base may adversely impact our ability to deliver ad impressions and, in turn, our financial performance.
If people do not perceive our products to be useful, reliable, and trustworthy, we may not be able to attract or retain users or otherwise maintain or
increase the frequency and duration of their engagement. A number of other social networking companies that achieved early popularity have since seen their
active user bases or levels of engagement decline, in some cases precipitously. There is no guarantee that we will not experience a similar erosion of our active
user base or engagement levels. Our user engagement patterns have changed over time, and user engagement can be difficult to measure, particularly as we and
our competitors introduce new and different products and services. Any number of factors can negatively affect user retention, growth, and engagement,
including if:
•users increasingly engage with other competitive products or services;
•we fail to introduce new features, products, or services that users find engaging or if we introduce new products or services, or make changes to
existing products and services, that are not favorably received;
•users feel that their experience is diminished as a result of the decisions we make with respect to the frequency, prominence, format, size, and quality
of ads that we display;
•users have difficulty installing, updating, or otherwise accessing our products on mobile devices as a result of actions by us or third parties that we rely
on to distribute our products and deliver our services;
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•user behavior on any of our products changes, including decreases in the quality and frequency of content shared on our products and services;
•we are unable to continue to develop products for mobile devices that users find engaging, that work with a variety of mobile operating systems and
networks, and that achieve a high level of market acceptance;
•there are decreases in user sentiment due to questions about the quality or usefulness of our products or our user data practices, concerns about the
nature of content made available on our products, or concerns related to privacy, safety, security, well-being, or other factors;
•we are unable to manage and prioritize information to ensure users are presented with content that is appropriate, interesting, useful, and relevant to
them;
•we are unable to obtain or attract engaging third-party content;
•we are unable to successfully maintain or grow usage of and engagement with applications that integrate with our products;
•users adopt new technologies where our products may be displaced in favor of other products or services, or may not be featured or otherwise
available;
•there are changes mandated by legislation, government and regulatory authorities, or litigation that adversely affect our products or users;
•we are unable to offer a number of our most significant products and services, including Facebook and Instagram, in Europe, or are otherwise limited
in our business operations, as a result of European courts invalidating the EU-U.S. DPF or regulators, courts, or legislative bodies determining that the
legal bases we rely upon to transfer user data from the European Union to the United States are invalid;
•there is decreased engagement with our products, or failure to accept our terms of service, as part of changes that we have implemented or may
implement in the future, whether voluntarily, in connection with the GDPR, the European Union's ePrivacy Directive, the DMA, the DSA, U.S. state
privacy and youth social media laws including the California Consumer Privacy Act (CCPA), as amended by the California Privacy Rights Act
(CPRA), Arkansas Social Media Safety Act, Ohio Parental Notification Act, Utah Social Media Regulation Act, or other laws, regulations, or
regulatory actions, or otherwise;
•technical or other problems prevent us from delivering our products in a rapid and reliable manner or otherwise affect the user experience, such as
security breaches or failure to prevent or limit spam or otherwise objectionable content, or users feel their experience is diminished as a result of our


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efforts to protect the security and integrity of our platform;
•we adopt terms, policies, or procedures related to areas such as sharing, content, user data, or advertising, or we take, or fail to take, actions to enforce
our policies, that are perceived negatively by our users or the general public, including as a result of decisions or recommendations from the
independent Oversight Board regarding content on our platform;
•we elect to focus our product decisions on longer-term initiatives that do not prioritize near-term user growth and engagement (for example, we have
announced plans to focus product decisions on optimizing the young adult experience in the long term);
•we make changes in our user account login or registration processes or changes in how we promote different products and services across our family
of products;
•initiatives designed to attract and retain users and engagement, including the use of evolving technologies such as generative artificial intelligence, are
unsuccessful or discontinued, whether as a result of actions by us, our competitors, or other third parties, or otherwise;
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•third-party initiatives that may enable greater use of our products, including low-cost or discounted data plans, are scaled back or discontinued, or the
pricing of data plans otherwise increases;
•there is decreased engagement with our products as a result of taxes imposed on the use of social media or other mobile applications in certain
countries, internet shutdowns, or other actions by governments that affect the accessibility of our products in their countries (for example, beginning in
the first quarter of 2022, our user growth and engagement were adversely affected by the war in Ukraine and service restrictions imposed by the
Russian government);
•we fail to provide adequate customer service to users, marketers, developers, or other partners;
•we, developers whose products are integrated with our products, or other partners and companies in our industry are the subject of adverse media
reports or other negative publicity, including as a result of our or their user data practices; or
•our current or future products, such as our development tools and application programming interfaces that enable developers to build, grow, and
monetize applications, reduce user activity on our products by making it easier for our users to interact and share on third-party applications.
From time to time, certain of these factors have negatively affected user retention, growth, and engagement to varying degrees. If we are unable to
maintain or increase our user base and user engagement, particularly for our significant revenue-generating products like Facebook and Instagram, our revenue
and financial results may be adversely affected. Any significant decrease in user retention, growth, or engagement could render our products less attractive to
users, marketers, and developers, which is likely to have a material and adverse impact on our ability to deliver ad impressions and, accordingly, our revenue,
business, financial condition, and results of operations. As the size of our active user base fluctuates in one or more markets from time to time, we will become
increasingly dependent on our ability to maintain or increase levels of user engagement and monetization in order to grow revenue.
We generate substantially all of our revenue from advertising. The loss of marketers, or reduction in spending by marketers, could seriously harm our
business.
Substantially all of our revenue is currently generated from marketers advertising on Facebook and Instagram. As is common in the industry, our
marketers do not have long-term advertising commitments with us. Many of our marketers spend only a relatively small portion of their overall advertising


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budget with us. Marketers will not continue to do business with us, or they will reduce the budgets they are willing to commit to us, if we do not deliver ads in
an effective manner, if they do not believe that their investment in advertising with us will generate a competitive return relative to other alternatives, or if they
are not satisfied for any other reason. We have implemented, and we will continue to implement, changes to our user data practices. Some of these changes
reduce our ability to effectively target ads, which has to some extent adversely affected, and will continue to adversely affect, our advertising business. If we
are unable to provide marketers with a suitable return on investment, the demand for our ads may not increase, or may decline, in which case our revenue and
financial results may be harmed.
Our advertising revenue can also be adversely affected by a number of other factors, including:
•decreases in user engagement, including time spent on our products;
•our inability to continue to increase user access to and engagement with our products;
•product changes or inventory management decisions we may make that change the size, format, frequency, or relative prominence of ads displayed on
our products or of other unpaid content shared by marketers on our products;
•our inability to maintain or increase marketer demand, the pricing of our ads, or both;
•our inability to maintain or increase the quantity or quality of ads shown to users;
•changes to the content or application of third-party policies that limit our ability to deliver, target, or measure the
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effectiveness of advertising, including changes by mobile operating system and browser providers such as Apple and Google;
•adverse litigation, government actions, or legislative, regulatory, or other legal developments relating to advertising, including developments that may
impact our ability to deliver, target, or measure the effectiveness of advertising;
•user behavior or product changes that may reduce traffic to features or products that we monetize at a higher rate, such as our feed and Stories
products, including as a result of increased usage of our Reels or other video or messaging products;
•reductions of advertising by marketers due to our efforts to implement or enforce advertising policies that protect the security and integrity of our
platform;
•the availability, accuracy, utility, and security of analytics and measurement solutions offered by us or third parties that demonstrate the value of our
ads to marketers, or our ability to further improve such tools;
•loss of advertising market share to our competitors, including if prices to purchase our ads increase or if competitors offer lower priced, more
integrated, or otherwise more effective products;
•limitations on our ability to offer a number of our most significant products and services, including Facebook and Instagram, in Europe as a result of
European courts invalidating the EU-U.S. DPF or regulators, courts, or legislative bodies determining that the legal bases we rely upon to transfer user
data from the European Union to the United States are invalid;
•limitations on our ability to deliver ads to users under the age of 18 and, in some cases, to continue to offer certain products or services to certain
cohorts of users, whether voluntarily, as a result of new laws and regulations in the United States and other jurisdictions, or otherwise;
•changes in our marketing and sales or other operations that we are required to or elect to make as a result of risks related to complying with laws or
regulatory requirements or other government actions;
•decisions by marketers to reduce their advertising as a result of announcements by us or adverse media reports or other negative publicity involving
us, our user data practices, our advertising metrics or tools, content on our products, our interpretation, implementation, or enforcement of policies
relating to content on our products (including as a result of decisions or recommendations from the independent Oversight Board), developers with
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applications that are integrated with our products, or other companies in our industry;
•reductions of advertising by marketers due to illegal, illicit, or otherwise objectionable content made available on our products by third parties,
questions about our user data practices or the security of our platform, concerns about brand safety or potential legal liability, or uncertainty regarding
their own legal and compliance obligations;
•the effectiveness of our ad targeting or degree to which users consent to or opt out of the use of data for ads, including as a result of product changes
and controls that we have implemented or may implement in the future in connection with the GDPR, ePrivacy Directive, CCPA, as amended by the
CPRA, DMA, other laws, regulations, regulatory actions, or litigation, or otherwise, that impact our ability to use data for advertising purposes (for
example, in November 2023, in response to regulatory developments in Europe, we began offering our users a "subscription for no ads" alternative in
the EU, EEA, and Switzerland);
•the degree to which users cease or reduce the number of times they engage with our ads;
•changes in the way advertising on mobile devices or on personal computers is measured or priced;
•the success of technologies designed to block the display of ads or ad measurement tools;
•changes in the composition of our marketer base or our inability to maintain or grow our marketer base; and
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•the impact of macroeconomic and geopolitical conditions, whether in the advertising industry in general, or among specific types of marketers or
within particular geographies, which in turn can have broader effects in other regions (for example, the war in Ukraine and service restrictions
imposed by the Russian government have adversely affected our advertising business in Europe and other regions, and advertiser spending also can be
subject to adverse effects from the Israel-Hamas war).
From time to time, certain of these factors have adversely affected our advertising revenue to varying degrees. The occurrence of any of these or other
factors in the future could result in a reduction in demand for our ads, which may reduce the prices we receive for our ads, or cause marketers to stop
advertising with us altogether, either of which would negatively affect our revenue and financial results.
Our ad targeting and measurement tools incorporate data signals from user activity on websites and services that we do not control, as well as signals
generated within our products, and changes to the regulatory environment, third-party mobile operating systems and browsers, and our own products have
impacted, and we expect will continue to impact, the availability of such signals, which will adversely affect our advertising revenue.
Our ad targeting and measurement tools rely on data signals from user activity on websites and services that we do not control, as well as signals
generated within our products, in order to deliver relevant and effective ads to our users, and any changes in our ability to use such signals will adversely affect
our business. For example, legislative and regulatory developments, such as the GDPR, ePrivacy Directive, and CCPA, as amended by the CPRA, have
impacted, and we expect will continue to impact, our ability to use such signals in our ad products. In particular, we have seen increases in the number of users
opting to control certain types of ad targeting in Europe following product changes implemented in connection with our GDPR and ePrivacy Directive
compliance, and we have introduced product changes that limit data signal use for certain users in California following adoption of the CCPA. Judicial and
regulatory guidance, decisions, or enforcement actions, or new legislation in these or other jurisdictions, such as the DMA, may require us to make additional
changes to our products in the future that further reduce our ability to use these signals, which has occurred in the past. For example, in response to regulatory


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developments in Europe, we announced plans to change the legal basis for behavioral advertising on Facebook and Instagram in the European Union, European
Economic Area, and Switzerland from "legitimate interests" to "consent," and in November 2023 we began offering users in the region a "subscription for no
ads" alternative. We are continuing to engage with regulators on our new consent model, including regarding compliance with requirements under the GDPR,
DMA, and EU consumer laws.
In addition, mobile operating system and browser providers, such as Apple and Google, have implemented product changes and/or announced future
plans to limit the ability of websites and application developers to collect and use these signals to target and measure advertising. For example, in 2021, Apple
made certain changes to its products and data use policies in connection with changes to its iOS operating system that reduce our and other iOS developers'
ability to target and measure advertising, which has negatively impacted, and we expect will continue to negatively impact, the size of the budgets marketers
are willing to commit to us and other advertising platforms. In addition, we have implemented, and may continue to implement, product changes that give users
the ability to limit our use of such data signals to improve ads and other experiences on our products and services, including changes implemented in
connection with the GDPR, ePrivacy Directive, DMA, and other regulatory frameworks.
These developments have limited our ability to target and measure the effectiveness of ads on our platform and negatively impacted our advertising
revenue. For example, our advertising revenue has been negatively impacted by marketer reaction to targeting and measurement challenges associated with iOS
changes beginning in 2021. If we are unable to mitigate these developments as they take further effect in the future, our targeting and measurement capabilities
will be materially and adversely affected, which would in turn significantly impact our advertising revenue.
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Our user growth, engagement, and monetization on mobile devices depend upon effective operation with mobile operating systems, networks, technologies,
products, and standards that we do not control.
The substantial majority of our revenue is generated from advertising on mobile devices. There is no guarantee that popular mobile devices will continue
to feature our products, or that mobile device users will continue to use our products rather than competing products. We are dependent on the interoperability
of our products with popular mobile operating systems, networks, technologies, products, and standards that we do not control, such as the Android and iOS
operating systems and mobile browsers. Changes, bugs, or technical issues in such systems, or changes in our relationships with mobile operating system
partners, handset manufacturers, browser developers, or mobile carriers, or in the content or application of their terms of service or policies (which they have
made in the past and continue to seek to implement) that degrade our products' functionality, reduce or eliminate our ability to update or distribute our products,
give preferential treatment to competitive products, limit our ability to deliver, target, or measure the effectiveness of ads, or charge fees related to the
distribution of our products or our delivery of ads have adversely affected, and could in the future adversely affect, the usage of our products and monetization
on mobile devices. For example, Apple previously released an update to its Safari browser that limits the use of third-party cookies, which reduces our ability
to provide the most relevant ads to our users and impacts monetization, and also released changes to iOS that limit our ability to target and measure ads
effectively, while expanding their own advertising business. In addition, in January 2024, Google began the process of phasing out third-party cookies in its
Chrome browser. We expect that any similar changes to Apple's, Google's, or other browser or mobile platforms will further limit our ability to target and
measure the effectiveness of ads and impact monetization. Additionally, in order to deliver high quality mobile products, it is important that our products work
well with a range of mobile technologies, products, systems, networks, and standards that we do not control, and that we have good relationships with handset
manufacturers, mobile carriers, and browser developers. We may not be successful in maintaining or developing relationships with key participants in the
mobile ecosystem or in developing products that operate effectively with these technologies, products, systems, networks, or standards. In the event that it is


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more difficult for our users to access and use our products on their mobile devices, or if our users choose not to access or use our products on their mobile
devices or use mobile products that do not offer access to our products, our user growth and user engagement could be harmed. From time to time, we may also
take actions regarding the distribution of our products or the operation of our business based on what we believe to be in our long-term best interests. Such
actions may adversely affect our users and our relationships with the operators of mobile operating systems, handset manufacturers, mobile carriers, browser
developers, other business partners, or advertisers, and there is no assurance that these actions will result in the anticipated long-term benefits. In the event that
our users are adversely affected by these actions or if our relationships with such third parties deteriorate, our user growth, engagement, and monetization could
be adversely affected and our business could be harmed. We have experienced challenges in operating with mobile operating systems, networks, technologies,
products, and standards that we do not control, and any such occurrences in the future may negatively impact our user growth, engagement, and monetization
on mobile devices, which may in turn materially and adversely affect our business and financial results.
Our new products and changes to existing products could fail to attract or retain users or generate revenue and profits, or otherwise adversely affect our
business.
Our ability to retain, increase, and engage our user base and to increase our revenue depends heavily on our ability to continue to evolve our existing
products and to create successful new products, both independently and in conjunction with developers or other third parties. We may introduce significant
changes to our existing products or acquire or introduce new and unproven products, including using technologies with which we have little or no prior
development or operating experience. For example, we have relatively limited experience with consumer hardware products and virtual and augmented reality
technology, which may adversely affect our ability to successfully develop and market these evolving products and technologies. We are also making
significant investments in artificial intelligence (AI) initiatives across our business. For example, we recently launched new AI features on our products,
including conversational AIs, stickers, and editing tools. We continue to incur substantial costs, and we may not be successful in generating profits, in
connection with these efforts.
In addition, we have invested, and expect to continue to invest, significant resources in growing our messaging products to support increasing usage of


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such products. We have historically monetized messaging in only a limited fashion, and we may not be successful in our efforts to generate meaningful revenue
or profits from messaging over the long term. We also recently commenced implementation of end-to-end encryption across our messaging services on
Facebook and Instagram, which has been subject to governmental and regulatory scrutiny in multiple jurisdictions.
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If our new products or changes to existing products fail to engage users, marketers, or developers, or if our business plans are unsuccessful, we may fail
to attract or retain users or to generate sufficient revenue, operating margin, or other value to justify our investments, and our business may be adversely
affected.
We may not be successful in our artificial intelligence initiatives, which could adversely affect our business, reputation, or financial results.
We are making significant investments in AI initiatives, including generative AI, to, among other things, recommend relevant content across our
products, enhance our advertising tools, develop new products, and develop new features for existing products. In particular, we expect our AI initiatives will
require increased investment in infrastructure and headcount.
There are significant risks involved in developing and deploying AI and there can be no assurance that the usage of AI will enhance our products or
services or be beneficial to our business, including our efficiency or profitability. For example, our AI-related efforts, particularly those related to generative AI,
subject us to risks related to harmful or illegal content, accuracy, misinformation (including related to elections), bias, discrimination, toxicity, intellectual
property infringement or misappropriation, defamation, data privacy, cybersecurity, and sanctions and export controls, among others. It is also uncertain how
various laws related to online services, intermediary liability, and other issues will apply to content generated by AI. In addition, we are subject to the risks of
new or enhanced governmental or regulatory scrutiny, litigation, or other legal liability, ethical concerns, negative consumer perceptions as to automation and
AI, activities that threaten people's safety or well-being on- or offline, or other complications that could adversely affect our business, reputation, or financial
results.
As a result of the complexity and rapid development of AI, it is also the subject of evolving review by various governmental and regulatory agencies in
jurisdictions around the world, which are applying, or are considering applying, platform moderation, intellectual property, cybersecurity, and data protection
laws to AI and/or are considering general legal frameworks on AI. We may not always be able to anticipate how courts and regulators will apply existing laws
to AI, predict how new legal frameworks will develop to address AI, or otherwise respond to these frameworks as they are still rapidly evolving. We may also
have to expend resources to adjust our offerings in certain jurisdictions if the legal frameworks on AI are not consistent across jurisdictions.


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Further, we face significant competition from other companies that are developing their own AI features and technologies. Other companies may
develop AI features and technologies that are similar or superior to our technologies or are more cost-effective to develop and deploy. Given the long history of
development in the AI sector, other parties may have (or in the future may obtain) patents or other proprietary rights that would prevent, limit, or interfere with
our ability to make, use, or sell our own AI features. Further, our ability to continue to develop and effectively deploy AI technologies is dependent on access to
specific third-party equipment and other physical infrastructure, such as processing hardware and network capacity, as to which we cannot control the
availability or pricing, especially in a highly competitive environment.
We are also developing AI technology that we make available via open source, commercial, and non-commercial license agreements to third-parties that
can use this technology for use in their own products and services. We may not have insight into, or control over, the practices of third parties who may utilize
such AI technologies. As such, we cannot guarantee that third parties will not use such AI technologies for improper purposes, including through the
dissemination of illegal, inaccurate, defamatory or harmful content, intellectual property infringement or misappropriation, furthering bias or discrimination,
cybersecurity attacks, data privacy violations, other activities that threaten people's safety or well-being on- or offline, or to develop competing technologies.
While we may mitigate certain risks associated with the improper use of our AI models through both technical measures and the inclusion of contractual
restrictions on third-party use in any agreement between us and any third party, we cannot guarantee that such measures will be effective. Such improper use by
any third party could adversely affect our business, reputation, or financial results or subject us to legal liability.
It is not possible to predict all of the risks related to the use of AI and changes in laws, rules, directives, and regulations governing the use of AI may
adversely affect our ability to develop and use AI or subject us to legal liability.
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We make product and investment decisions that may not prioritize short-term financial results and may not produce the long-term benefits that we expect.
We frequently make product and investment decisions that may not prioritize short-term financial results if we believe that the decisions are consistent
with our mission and benefit the aggregate user experience and will thereby improve our financial performance over the long term. For example, we have
implemented, and we will continue to implement, changes to our user data practices. Some of these changes reduce our ability to effectively target ads, which
has to some extent adversely affected, and will continue to adversely affect, our advertising business. For example, our Off-Facebook Activity tool enables
users to place limits on our storage and use of information about their interactions with advertisers' apps and websites, which reduces our ability to deliver the
most relevant and effective ads to our users. Similarly, from time to time we update our feed display and ranking algorithms or other product features to
improve the user experience, and these changes have had, and may in the future have, the effect of reducing time spent and some measures of user engagement
with our products, which could adversely affect our financial results. From time to time, we also change the size, frequency, or relative prominence of ads as
part of our product and monetization strategies. In addition, we have made, and we expect to continue to make, other changes to our products which may
adversely affect the distribution of content of publishers, marketers, and developers, and could reduce their incentive to invest in their efforts on our products.
We also may introduce new features or other changes to existing products, or introduce new stand-alone products, that attract users away from properties,
formats, or use cases where we have more proven means of monetization, such as our feed products. In addition, as we focus on growing users and engagement
across our family of products, from time to time these efforts have reduced, and may in the future reduce, engagement with one or more products and services
in favor of other products or services that we monetize less successfully or that are not growing as quickly. For example, we plan to continue to promote Reels,
which we expect will continue to monetize at a lower rate than our feed and Stories products for the foreseeable future. These decisions may adversely affect
our business and results of operations and may not produce the long-term benefits that we expect.


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We may not be successful in our metaverse strategy and investments, which could adversely affect our business, reputation, or financial results.
We believe the metaverse, an embodied internet where people have immersive experiences beyond two-dimensional screens, is the next evolution in
social technology. In 2021, we announced a shift in our business and product strategy to focus on helping to bring the metaverse to life. We expect this will be a
complex, evolving, and long-term initiative that will involve the development of new and emerging technologies, continued investment in infrastructure as well
as privacy, safety, and security efforts, and collaboration with other companies, developers, partners, and other participants. However, the metaverse may not
develop in accordance with our expectations, and market acceptance of features, products, or services we build for the metaverse is uncertain. We regularly
evaluate our product roadmaps and make significant changes as our understanding of the technological challenges and market landscape and our product ideas
and designs evolve. In addition, we have relatively limited experience with consumer hardware products and virtual and augmented reality technology, which
may enable other companies to compete more effectively than us. We may be unsuccessful in our research and product development efforts, including if we are
unable to develop relationships with key participants in the metaverse or develop products that operate effectively with metaverse technologies, products,
systems, networks, or standards. Our metaverse efforts may also divert resources and management attention from other areas of our business. We expect to
continue to make significant investments in virtual and augmented reality and other technologies to support these efforts, and our ability to support these efforts
is dependent on generating sufficient profits from other areas of our business. In addition, as our metaverse efforts evolve, we may be subject to a variety of
existing or new laws and regulations in the United States and international jurisdictions, including in the areas of privacy, safety, competition, content
regulation, consumer protection, and e-commerce, which may delay or impede the development of our products and services, increase our operating costs,
require significant management time and attention, or otherwise harm our business. As a result of these or other factors, our metaverse strategy and investments
may not be successful in the foreseeable future, or at all, which could adversely affect our business, reputation, or financial results.
If we are not able to maintain and enhance our brands, our ability to maintain or expand our base of users, marketers, and developers may be impaired,


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and our business and financial results may be harmed.
We believe that our brands have significantly contributed to the success of our business. We also believe that maintaining and enhancing our brands is
critical to maintaining and expanding our base of users, marketers, and developers. Many of our new users are referred by existing users. Maintaining and
enhancing our brands will depend largely on our ability to continue to provide useful, reliable, trustworthy, and innovative products, which we may not do
successfully. We may introduce new products, terms of service, or policies that users do not like, which may negatively affect our brands.
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Additionally, the actions of our developers or advertisers may affect our brands if users do not have a positive experience using third-party applications
integrated with our products or interacting with parties that advertise through our products. We will also continue to experience media, legislative, or regulatory
scrutiny of our actions or decisions regarding user privacy, data use, encryption, content, product design, algorithms, advertising, competition, generative AI,
younger users, and other issues, including actions or decisions in connection with elections or geopolitical events, which has adversely affected, and may in the
future adversely affect, our reputation and brands. For example, beginning in September 2021, we became the subject of media, legislative, and regulatory
scrutiny as a result of a former employee's allegations and release of internal company documents relating to, among other things, our algorithms, advertising
and user metrics, and content enforcement practices, as well as misinformation and other undesirable activity on our platform, and user well-being. In addition,
in March 2018, we announced developments regarding the misuse of certain data by a developer that shared such data with third parties in violation of our
terms and policies. We also may fail to respond expeditiously or appropriately to the sharing of content on our services, or to practices by advertisers or
developers, that are illegal, illicit, or in violation of our policies, or fail to otherwise enforce our policies, address objectionable content or practices on our
services, or address other user concerns, which has occurred in the past and which could erode confidence in our brands.
Our brands may also be negatively affected by the actions of users that are deemed to be hostile or inappropriate to other users, by the actions of users
acting under false or inauthentic identities, by the use of our products or services to disseminate information that is deemed to be misleading (or intended to
manipulate opinions), by perceived or actual efforts by governments to obtain access to user information for security-related purposes or to censor certain
content on our platform, by the use of our products or services for illicit or objectionable ends, including, for example, any such actions around geopolitical
events or elections in the United States and around the world, by decisions or recommendations regarding content on our platform from the independent
Oversight Board, by research or media reports concerning the perceived or actual impacts of our products or services on user well-being, by our decisions


