Microsoft reported 12% year-over-year growth in search and advertising revenue excluding traffic acquisition costs (TAC) for the first quarter of fiscal 2027, supported by higher advertising volume and pricing across Bing, Microsoft Edge and LinkedIn. The results, announced on October 28, 2026, show continued growth in Microsoft’s advertising business as the company expands its AI-powered search and productivity offerings.
The headline growth rate needs context. Microsoft’s reported Search and advertising revenue reached approximately $6.55 billion, compared with $5.94 billion in the year-ago quarter, representing growth of around 10.3% on the reported revenue line. The 12% figure excludes traffic acquisition costs and reflects Microsoft’s fiscal 2027 reporting structure, which combines search advertising with LinkedIn Marketing Solutions and Premium Subscriptions. The quarter also saw Microsoft post $92.3 billion in total revenue, with cloud and AI infrastructure remaining major contributors to overall growth.
Key Takeaways
- Search and advertising growth: Revenue excluding traffic acquisition costs increased 12% year over year in Q1 FY27.
- Reported revenue: The combined Search and advertising revenue line reached approximately $6.55 billion, up from $5.94 billion a year earlier.
- Growth drivers: Microsoft cited higher volume and pricing across LinkedIn, Edge and Bing.
- Overall performance: Microsoft’s total quarterly revenue rose 19% to $92.3 billion.
- Cloud momentum: Microsoft Cloud revenue increased 30%, while Azure revenue grew 48%.
- Reporting change: The fiscal 2027 metric combines search advertising with LinkedIn Marketing Solutions and Premium Subscriptions, making it broader than Bing advertising alone.
Microsoft Search and Advertising Revenue: Q1 FY27 Results
Microsoft’s search and advertising business continued to expand in the September quarter, according to the company’s official earnings release.
The company reported $6.554 billion in Search and advertising revenue, compared with $5.942 billion in the corresponding quarter of fiscal 2026. That represents an increase of approximately $612 million, or 10.3%.
Microsoft also reported that revenue excluding traffic acquisition costs increased 12% year over year. TAC refers to payments made to publishers and content partners that help generate search traffic. Excluding these payments provides a different view of the revenue retained by the business after those costs.
| Metric | Q1 FY26 | Q1 FY27 | Year-over-year change |
|---|---|---|---|
| Search and advertising revenue | $5.942 billion | $6.554 billion | +10.3% |
| Search and advertising revenue, excluding TAC | — | — | +12% |
| Increase in reported revenue | — | $612 million | — |
Note: The 12% figure is Microsoft’s reported growth rate excluding TAC. It should not be confused with the growth rate of the reported revenue line.
The results suggest that Microsoft’s advertising operations are growing, although the combined metric does not reveal the individual revenue contribution of every product included in the category.
Bing, Edge and LinkedIn Support Advertising Growth
Microsoft attributed the 12% increase in search and advertising revenue excluding TAC to higher volume and pricing across LinkedIn, Edge and Bing, according to its first-quarter earnings call.
Each platform contributes to Microsoft’s advertising strategy in a different way.
Bing provides search advertising opportunities by connecting advertisers with users looking for information, products and services. Search advertising is particularly valuable because users often signal their interests through the queries they enter.
Microsoft Edge provides another route to search discovery through the company’s web browser. Search activity and related advertising opportunities can benefit when users engage with Microsoft’s search services through its browser ecosystem.
LinkedIn connects advertisers with a professional audience. Its Marketing Solutions business serves companies seeking to reach people based on professional interests and other available targeting characteristics.
The combined growth figure reflects activity across these businesses, rather than a single advertising product. Microsoft’s results do not provide a separate dollar breakdown for Bing, Edge and LinkedIn within this headline metric.
How AI Could Influence Microsoft’s Advertising Business
AI is changing how people search for information and how technology companies present answers, recommendations and commercial content. Microsoft has integrated AI experiences into its products, including Copilot and its broader search ecosystem.
For advertising businesses, these developments create both opportunities and questions.
AI-powered search can help users explore complex questions, compare products and discover information through conversational interactions. These experiences may create new ways to connect users with relevant commercial content, although the impact depends on user engagement, product design and advertising formats.
Microsoft can also draw on its wider technology ecosystem, which includes Windows, Edge, Bing, Microsoft 365 and LinkedIn. The company has opportunities to connect its advertising products with the audiences and workflows associated with those services.
However, AI usage does not automatically translate into advertising revenue. Companies must determine how to integrate advertising into AI experiences without undermining user trust or the quality of answers. They must also manage the computing costs associated with serving increasingly complex AI-powered products.
Microsoft’s quarterly results establish that the combined search and advertising category grew, but they do not isolate how much of that growth came directly from AI features.
Microsoft’s Overall Q1 FY27 Financial Performance
The advertising results came during a strong quarter for Microsoft overall. Total revenue reached $92.279 billion, up from $77.673 billion in the year-ago quarter. Operating income increased to $45.915 billion, while net income rose to $36.629 billion.
| Financial metric | Q1 FY26 | Q1 FY27 | Year-over-year change |
|---|---|---|---|
| Total revenue | $77.673 billion | $92.279 billion | +18.8% |
| Operating income | $37.961 billion | $45.915 billion | +21.0% |
| Net income | $27.747 billion | $36.629 billion | +32.0% |
| Search and advertising revenue | $5.942 billion | $6.554 billion | +10.3% |
| Azure revenue | $22.384 billion | $33.165 billion | +48.2% |
Source: Microsoft’s Q1 FY27 earnings materials. Figures are rounded where appropriate.
Azure and the broader cloud business grew faster than the reported Search and advertising revenue line. Microsoft Cloud revenue increased 30%, while Azure revenue rose 48%.
This comparison illustrates the different growth rates across Microsoft’s business portfolio. Advertising remains an important revenue stream, but the quarter’s headline financial performance also reflects strong demand for cloud computing and AI infrastructure.
Why the TAC-Excluded Figure Matters
Traffic acquisition costs can affect how search advertising growth is interpreted. Search platforms may share revenue with publishers or partners that help attract users or provide traffic. Excluding these costs offers a view of growth after accounting for those payments.
For Q1 FY27, Microsoft reported 12% growth in search and advertising revenue excluding TAC, compared with approximately 10.3% growth in the reported revenue line.
These figures are not contradictory; they measure different things. The TAC-excluded figure is a company-defined operating metric, while the reported revenue figure reflects the revenue line presented in Microsoft’s financial materials.
The distinction matters for investors, advertisers and analysts comparing results across periods. It is also important because Microsoft’s fiscal 2027 reporting structure includes LinkedIn Marketing Solutions and Premium Subscriptions in the combined metric. As a result, the headline figure should not be treated as a direct measure of Bing advertising alone.
What the Results Mean for Advertisers and Investors
For advertisers, the growth suggests that Microsoft’s combined search and advertising platform continues to generate increased revenue. Higher volume can reflect more advertising activity, while higher pricing can indicate changes in demand, inventory or the mix of advertisements sold.
The results may be relevant to businesses evaluating Microsoft’s advertising services alongside other digital platforms. However, the reported figures do not establish that advertising performance improved equally across every product, market or customer segment.
For investors, the 12% TAC-excluded growth rate provides one indicator of the company’s advertising performance. A more complete assessment would also consider margins, spending, product-level trends and the growth of Microsoft’s other business segments.
The reporting change is another factor to consider when comparing fiscal 2027 with earlier periods. Because the combined metric includes LinkedIn Marketing Solutions and Premium Subscriptions, year-over-year comparisons should use Microsoft’s revised definitions rather than assume that the category is identical to older search-advertising measures.
The Bigger Picture
Microsoft’s Q1 FY27 results show that search and advertising remains a growing part of a much larger technology business. The company is operating across search, professional networking, cloud computing, productivity software and AI-powered products, creating multiple potential routes for growth. The combined advertising metric rose 12% excluding TAC, while Azure and Microsoft Cloud recorded stronger growth rates during the same quarter.
The next question is how sustainably Microsoft can grow its advertising business as search behavior evolves and AI becomes more integrated into digital products. Future results will help clarify whether advertising growth remains broad-based across Bing, Edge and LinkedIn, and how the company balances advertising opportunities with investments in AI infrastructure and user experience.
FAQs
1. How much did Microsoft’s search and advertising revenue grow in Q1 FY27?
Microsoft reported 12% year-over-year growth in search and advertising revenue excluding traffic acquisition costs. Its reported revenue line rose from $5.942 billion to $6.554 billion, an increase of approximately 10.3%.
2. What is traffic acquisition cost?
Traffic acquisition cost, or TAC, refers to payments made to publishers and content partners that help generate traffic. Microsoft’s TAC-excluded metric provides a view of search and advertising revenue after excluding these costs.
3. What drove Microsoft’s advertising growth?
Microsoft cited higher volume and pricing across LinkedIn, Edge and Bing. The company did not provide a separate dollar contribution for each platform in the headline growth figure.
4. Does the 12% growth rate represent Bing advertising alone?
No. Microsoft’s fiscal 2027 reporting structure combines search advertising with LinkedIn Marketing Solutions and Premium Subscriptions. The 12% figure should therefore be understood as a broader search and advertising metric excluding TAC.
5. How did Microsoft perform overall in Q1 FY27?
Microsoft reported $92.279 billion in total revenue, up 18.8% year over year. Operating income increased to $45.915 billion, net income reached $36.629 billion, and Azure revenue grew approximately 48%.
Looking Ahead
Microsoft’s next quarterly results will provide more evidence about the durability of advertising growth and the contribution of its individual platforms. Advertisers and investors will be watching search activity, pricing trends and the role of AI-powered experiences, while keeping in mind that the combined reporting category does not isolate Bing’s performance.
The broader financial picture will remain important as well. Microsoft’s advertising business is growing alongside a rapidly expanding cloud and AI infrastructure operation, and the company’s future performance will depend on how effectively it balances revenue opportunities, operating costs and investment across these businesses.
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