Microsoft earnings show effects of turnaround strategy

Microsoft’s stock rose more than 3 per cent in extended trading after the results came out. Server product and cloud service revenue both increased by 3 percent, and Azure revenue was up a substantial 12 percent.

“Businesses everywhere are using the Microsoft Cloud as their digital platform to drive their ambitious transformation agendas”, he said. The company said its Windows 10 offering, introduced last summer, earlier this month was running on 200 million computers, up from 100 million for the period ended in September, Microsoft said. Earnings per share were $0.62 with Microsoft also returning $6.5 billion to investors in the form of repurchases and dividends over this quarter.

Since Microsoft reports its Azure revenue within what it calls the Intelligent Cloud division, it’s unclear how much Azure, in particular, raked in; the cloud unit as a whole, however, brought in $6.3 billion, a 5% increase from a year ago.

Similarly, while the Windows Store is still working to attract big-name developers, Microsoft says that the holiday shopping season saw more sales there, too. In total, Windows OEM revenue fell 5% in constant currency. Overall phone revenue fared little better, with a 49% year on year decline. Xbox Live monthly active users also were up 30 percent year-over-year to a record 48 million. Investors will also monitor the struggling hardware sales and how well the company has managed to build an ecosystem around its Windows 10 platform.

The Xbox business was bolstered by the October release of Halo 5, the first new title since 2012 in Microsoft’s most successful game franchise.

Overall, the Productivity business was down 2% from last quarter, but Office 365 continues to grow and make up for some of the shortfall with 20.6 million consumer subscribers.

Office 365 revenue grew almost 70 percent, a sign of Microsoft’s success at diversifying away from Windows.

Nadella has been pushing the company, once the dominant seller of PC-based software, to adapt to a world where people are increasingly using mobile gadgets in addition to PCs, and where businesses are moving more of their operations online.

The phone revenue is said to have been expected, according to Microsoft, as it is “reflecting [their] strategy change announced in July 2015”.

Such thinking helps explain how Microsoft has become the second largest provider of cloud infrastructure, services and software, well ahead of Salesforce, Oracle and Google, according to a Goldman Sachs analysis. In the guidance issued last quarter, Microsoft had reduced its operating expenses forecast by $2 billion for the whole year.