Microsoft Earnings Top Estimates on Strong Cloud Business

During the earnings call Microsoft CEO Satya Nadella told analysts that the clearest indicator of the company’s progress is that almost 30% of the search revenue in December came from Windows 10 devices, partly as a result of user engagement with Cortana.

Shares of Microsoft climbed by as much as 7.89% to $56.16 per share in after-hours trades. The software giant had 20.6 million Office 365 consumer subscribers as of the end of the quarter and recorded an 11% constant currency increase in Dynamics revenue.

Microsoft revenue in More Personal Computing declined 5 percent. On the smartphone side of things, Microsoft’s Windows Phone revenue fell 49 percent year over year. This figure was down two percent on the same period previous year, but up three percent in “constant currency” figures when currency fluctuations are taken into account, Microsoft said.

Among the numbers, Microsoft is hanging its quarterly revenue hat on are the gains from its Productivity and Business Processes division.

Surface’s revenue did dip last quarter, but this time it is up over 29% to $1.35 billion, thanks to the Surface Pro 4 and Surface Book. That measure, which includes Azure plus other businesses such as Office 365, is up 15% from the $8.2bn revenue it estimated last quarter.

“They nailed the cloud”, said Matt Howard, a venture capitalist at Norwest Ventures who monitors Microsoft closely.

Q2 earnings were primarily driven by growth in cloud and Office 365, though it was also a strong quarter for the Surface lineup.

But the future of the company really revolves around the cloud.

“The enterprise cloud opportunity is massive”, said Nadella on the earnings call, describing the space as “larger than any market we have ever participated in”. On the other hand, its Surface laptop/tablet hybrid, along with cloud and server growth, helped the company balance the revenue lost from offering Windows 10 to customers for free. AWS reported $2.4 billion in sales for AWS on Thursday, with $687 million in operating income, for a revenue growth rate just shy of 70% – about half of Azure’s reported rise, though Amazon’s number did not use constant currency.