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Microsoft Earnings Top Estimates on Strong Cloud Business

The company says business pilot programs for Windows 10 should help the software soon run on 200 million devices.

David Ramos / Getty Images

Microsoft on Thursday posted fiscal second-quarter results ahead of analysts’ estimates amid strong results from its cloud business.

The company posted $5 billion in net income, or 62 cents per share, on revenue of $23.8 billion. Excluding certain items, the company reported income of $6.3 billion, or 78 cents per share, on adjusted revenue of $25.7 billion. Analysts were expecting per-share earnings of 71 cents on revenue of $25.2 billion.

Microsoft, while often seen as not possessing the cool factor of Google and Apple, has nonetheless continued to top expectations in recent quarters amid strong sales to businesses.

The company said it will provide financial outlook when it holds a conference call with analysts later on Thursday.

Shares rose in after-hours trading, changing hands recently at $55.01, up $2.95 or more than 5 percent.

Among other highlights, Microsoft noted that:

  • Windows revenue from computer makers dropped 5 percent, though that was less than overall PC market decline.
  • Server products and cloud services revenue grew 10 percent on a constant currency basis.
  • Nearly 30 percent of search revenue in December was driven by Windows 10. Search advertising revenue overall grew 21 percent on a constant currency basis and the business remained profitable.
  • Microsoft’s devices business saw mixed results as Surface revenue increased 29 percent in constant currency, while phone revenue fell by nearly half. Overall, sales fell 26 percent.
  • Office 365, the subscription version of Office, continued to grow with revenue up 70 percent, again on that constant currency basis, with consumer Office 365 subscriptions now topping 20 million.
  • The mobile version of Outlook, which stems from Microsoft’s 2014 Acompli acquisition, is now running on 30 million Android and iOS devices.

Update, 2:37 p.m. PT: On a conference call with analysts, Nadella said Windows 10 is running on more than 200 million devices. The company has set a goal of having a billion devices running the software in a couple years’ time.

“Overall this quarter we had solid performance and more important drove growth in areas that are key to our future,” CEO Satya Nadella said on the call. He added that Microsoft’s commercial cloud is now at a $9.4 billion run rate — nearly half way to its $20 billion goal.

“The enterprise cloud opportunity is massive — larger than any market we have ever participated in,” Nadella said.

2:48 p.m.: Nadella also tried to put a positive spin on global economic worries, saying that although it creates uncertainty for Microsoft like any business, the upheaval could be good for Microsoft too. “Every organization is looking for ways to gain efficiencies; this is at the heart of our mission.”

2:57 p.m.: CFO Amy Hood said the company’s view is that foreign currency rates should impact the current quarter revenue by four percent.

The search business should continue to gain US share and remain profitable, Hood said, while the phone business is likely to drop similar to the 49 percent year-over-year drop it posted for the December-ending quarter.

3:00 p.m.: On to Q and A. But don’t get your hopes up. Microsoft’s sessions with analysts are notoriously dull.

3:02 p.m.: Yep, in one sentence, Nadella just used SaaS, PaaS, and some-other-letter-as-a-service. I need some caffeine-as-a-service (CaaS?).

3:08 p.m.: Asked how Microsoft is seeing the broader economy, Hood punts, saying she prefers to focus on the things that are within Microsoft’s control.

This article originally appeared on Recode.net.