MSFT · 10-Q · 2026Q1 · Full report

Commercial Remaining Performance Obligation

MICROSOFT CORP · 2026-04-29 · Importance 25 · Surprise 6 · Contradicted

Microsoft applies judgment to determine standalone selling prices (SSP) for on‑premises licenses sold with Software Assurance (SA), software updates provided at no additional charge, and other bundled offerings. When products and services are sold separately, Microsoft uses ranges of SSP and stratifies by customer size and geographic region to allocate discounts across performance obligations. The company accounts for returns, credits, and estimated customer usage as variable consideration and estimates remaining performance obligations (RPO) at contract outset to represent revenue expected to be recognized in future periods. These practices affect timing and mix of revenue recognition across product types including on‑premises licenses and SA benefits.

Key facts

• Commercial remaining performance obligation increased 99% to $627 billion in the third quarter of fiscal year 2026. source
• Unearned revenue expected to be recognized: $24,810 million in the quarter ending June 30, 2026, $13,449 million in the quarter ending September 30, 2026, $9,526 million in the quarter ending December 31, 2026, $3,139 million in the quarter ending March 31, 2027, and $2,753 million thereafter, totaling $53,677 million as of March 31, 2026. source
• 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 are accounted for as variable consideration when determining the amount of revenue to recognize. source
• Returns and credits are estimated at contract inception and updated at the end of each reporting period if additional information becomes available. source
• Changes to our estimated variable consideration were not material for the periods presented. source
• 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. source
• Remaining performance obligations represent the revenue we expect to recognize for our products and services for which control has not yet been transferred to customers. source
• 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. source

Impact estimates