Microsoft shares surged on growth in its booming cloud business

Microsoft’s net income fell to $5 billion, or 62 cents per share, in its second-quarter ended December 31 from $5.86 billion, or 71 cents per share, a year earlier. This division includes the Windows operating system, Microsoft’s Surface devices and smartphones and search advertising revenue.

The future of Microsoft’s device business is left uncertain after its latest quarterly report revealed that sales of its flagship Lumia phones plummeted by more than 50 per cent in a year. The two companies are proving to be fierce rivals in the arena of public cloud, where Microsoft is gaining momentum with its Azure product line, which saw a 140% year-over-year jump in revenue in constant currency.

Nadella commented that “businesses everywhere are using the Microsoft Cloud as their digital platform”.

“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”.

Microsoft made “significant progress” in boosting its gross margins for Azure and Office 365, and its addition of premium-level offerings in Azure and Office 365 have helped on that front, CFO Amy Hood said on the call.

Microsoft generated $25.7 billion in revenue for Q2 2016, largely driven by its Azure and Office 365 cloud offerings. The company still trails market leader Amazon Web Service, but beats AWS in terms of growth. Subscriptions for Office 365 productivity software also lured both businesses and consumers, and even Windows sales came in better than the overall PC market, fueled by the adoption of Windows 10. Last quarter, that figure hit $9.4 billion, up from $8.2 billion the previous quarter.

Microsoft returned $6.5 billion to shareholders in dividends.

PC sales remain a drag on the company, with revenue continuing to decline quicker than expected.

Microsoft is still making a lot of money, but the company is doing it with Surface, Windows 10 and its cloud platform, and definitely not Windows phones.

On the other side, revenue for Windows Surface devices increased 29 percent driven by the launch of Surface Pro 4 and Surface Book while online gaming “Xbox Live” monthly active users grew 30 percent year-over-year to a record 48 million. CNBC has reported that a third of Fortune 500 companies opt for Microsoft Enterprise Mobility Solutions, marking its cloud products as gaining quick traction among Enterprise clients.