Microsoft Q1 FY27 Earnings: Search and Advertising Grows 12%, and the Line Now Includes LinkedIn Ads
Microsoft reported fiscal Q1 2027 results on October 28, 2026, for the quarter ended September 30: $92.3B in revenue, up 19%. Search and advertising revenue excluding traffic acquisition costs grew 12%, and Microsoft said that was ahead of its own expectations. The catch for media buyers: Microsoft changed what the number counts. It now includes LinkedIn Marketing Solutions and LinkedIn Premium, so it is no longer a clean read on Bing.
The numbers
- Total revenue: $92.3B (+19% YoY, +19% in constant currency)
- Operating income: $45.9B (+21%)
- Net income: $36.6B GAAP (+32%); $36.4B non-GAAP (+18%). The GAAP figure includes a $207M gain from OpenAI investments, against a $3.1B loss a year earlier
- Diluted EPS: $4.92 GAAP; $4.89 non-GAAP
- Search and advertising revenue: $6.55B, against $5.94B a year earlier. That is about +10% on our arithmetic; Microsoft does not state this growth rate
- Search and advertising ex-TAC: +12% (+12% in constant currency)
- Devices and Consumer segment: $15.5B (-3%). Search and advertising is now 42% of it
- Windows OEM and devices: $3.55B (-22%)
- Azure: $33.2B (+48%)
- Microsoft Cloud: $63.9B (+30%); commercial remaining performance obligation $677B (+73%)
- Capital expenditures: $45.2B including finance leases; $39.4B in cash paid for property and equipment, double the $19.4B of a year earlier
- Q2 outlook for search: ex-TAC growth in the low double digits
The metric changed, so last quarter's number is not comparable
This is Microsoft's first quarter under the segment structure it announced in September 2026. The old More Personal Computing, Intelligent Cloud and Productivity and Business Processes segments are gone. There are now two: Agents and Infra ($76.8B, +25%) and Devices and Consumer ($15.5B, -3%). Search sits in Devices and Consumer, next to Xbox and Windows OEM.
The line itself was renamed from "Search and news advertising" to "Search and advertising", and its definition widened. Microsoft's investor metrics footnote now reads: revenue from search advertising excluding traffic acquisition costs paid to Bing Ads network publishers and content partners, "as well as revenue from LinkedIn Marketing Solutions (ex TAC) and Premium Subscriptions."
We can see the effect in one quarter where both versions exist. For the quarter ended March 31, 2026, Microsoft originally reported search and news advertising ex-TAC at +12% (+9% in constant currency), which is what we wrote up in our Q3 FY26 post. The recast figure for the same quarter is +14% (+11%). Same quarter, two points higher. Our inference, not Microsoft's statement: the LinkedIn lines that were added were growing faster than search.
Five quarters on the new basis
Microsoft recast prior periods, so the trend is readable on one definition.
| Quarter | Quarter ended | Ex-TAC growth, reported | Constant currency |
|---|---|---|---|
| Q1 FY26 | Sep 30, 2025 | +16% | +15% |
| Q2 FY26 | Dec 31, 2025 | +13% | +12% |
| Q3 FY26 | Mar 31, 2026 | +14% | +11% |
| Q4 FY26 | Jun 30, 2026 | +13% | +12% |
| Q1 FY27 | Sep 30, 2026 | +12% | +12% |
Source: Microsoft FY27 Q1 investor metrics, recast for the September 2026 segment change.
Two honest readings. On a reported basis, +12% is the slowest of the five quarters, down from +16% a year ago. In constant currency it has sat at 11% to 12% for four straight quarters. The reported slowdown is mostly a currency tailwind fading, not demand falling off. Either way, this is a steady low-teens business, and Microsoft guided the next quarter to the same place.
What advertisers should actually take away
Volume and rate both went up
CFO Amy Hood said growth was "driven by higher volume and rate across LinkedIn, Edge, and Bing." Volume means more searches and more ad engagement. Rate means more revenue per unit. For a buyer, a rising rate usually shows up as a higher cost per click or per result. Microsoft gave no split between the two and no per-platform number, so the only way to know which one hit you is your own account data.
"Bing and Edge once again took share." No number attached
That is Satya Nadella's sentence on the call, and it is the whole disclosure. No share figure, no query count, no Bing monthly active user update. Six months ago Microsoft announced Bing had reached 1 billion monthly active users; this quarter it said nothing on that. Treat the share claim as directional, and check it against your own Bing impression volume before moving budget.
LinkedIn ads now hide inside the search number
LinkedIn Marketing Solutions used to be reported with LinkedIn. It now sits in the same line as Bing search ads. Microsoft did say LinkedIn has more than 1.4 billion members and that time spent viewing content in the feed rose over 15% year over year, which is more ad inventory. But a B2B buyer can no longer read LinkedIn ad growth off Microsoft's results, and a search buyer can no longer read Bing off them either.
Nothing on Copilot ads
Nadella said Copilot daily users were up nearly 50% quarter over quarter and more than five times year over year, without saying which Copilot or how a daily user is counted. Asked directly, Hood said Microsoft "did not disclose" an update on the Copilot number this quarter. The call had nothing on ad formats inside Copilot or on Copilot's contribution to advertising revenue. If someone pitches you Copilot inventory using this earnings call as evidence, the evidence is not there.
Windows OEM fell 22%, and Microsoft expects worse
Windows OEM and devices revenue dropped 22%, and Hood guided the next quarter to a decline "in the mid-thirties." New Windows PCs ship with Edge and Bing as defaults, so they are a distribution channel for Microsoft's search volume. Microsoft did not connect PC sales to search on the call, and search volume grew this quarter anyway. We flag it as the number to watch if Bing volume softens in 2027, not as a prediction.
Capex is an investor story, not an advertiser one
Capital expenditures were $45.2B, lower than planned because some third-party capacity deliveries slipped. Microsoft expects more than $50B next quarter and about $170B for calendar 2026. Azure grew 48%. None of this tells you anything about your Microsoft Advertising CPCs.
The reliability side of the same quarter
Earnings tell you how much money moved through the platform. They do not tell you how often the platform's reporting was wrong while it moved. From September 1 to 15, 2026, inside this same quarter, our monitoring logged 9 incidents across the platforms we track. Four were Microsoft Advertising, more than any other platform. All four were reporting delays, with 110 hours of announced exposure between them, including 77 hours on Quality Score data.
Delivery kept running, which is why none of it shows in revenue. If you optimized bids on those days, you did it on stale numbers. The detail is in the September 2026 reliability report and the September 16 Microsoft Advertising outage write-up.
What to check in your account this week
- 1 Split volume from rate in your own data. Pull July to September 2026 against the same months of 2025 for Microsoft Advertising: clicks and impressions for volume, average CPC for rate. Microsoft says both rose. Find out which one rose for you.
- 2 Report LinkedIn and Bing separately. Microsoft now blends them. If your own dashboards roll "Microsoft" into one line, you have the same blind spot.
- 3 Test the share claim on your brand terms. Compare Bing impression volume on your brand and top non-brand terms year over year. If Bing and Edge took share in your category, it shows there first.
- 4 Mark the September reporting delays in your notes. Any bid or budget decision made on Microsoft Advertising data during those windows deserves a second look, especially Quality Score changes.
- 5 Plan Q4 on steady, not surging. Microsoft guided search ex-TAC growth to the low double digits again, "driven by consistent trends in rate and volume." Budget for the same auction you had in Q3, not a cheaper one.
Sources
Every figure above comes from Microsoft's own investor relations pages, except the incident counts, which come from AdStatus monitoring.
- Microsoft FY27 Q1 earnings press release, October 28, 2026
- Microsoft FY27 Q1 earnings call transcript (Nadella and Hood quotes, capex, Q2 outlook)
- Microsoft FY27 Q1 investor metrics (definition of Search and advertising, recast growth rates)
Know when Microsoft Advertising reporting is delayed
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