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Cloud computing services continue to be a major contributor to Microsoft’s booming revenue growth as the company reports its earnings for the second quarter of fiscal year 2017 ending Dec. 31, 2016.
Beating Wall Street expectations, the Redmond, Wash., technology giant reported $26.1 billion in revenue (non-GAAP). Financial analysts had expected Microsoft to book sales of $25.3 billion during the quarter. Net income was $6.5 billion and the company posted earnings per share of 83 cents, well ahead of the 79 cents predicted by analysts.
“Our customers are seeing greater value and opportunity as we partner with them through their digital transformation,” said Satya Nadella, CEO at Microsoft, in a statement. “Accelerating advancements in AI across our platforms and services will provide further opportunity to drive growth in the Microsoft Cloud.”
Microsoft’s commercial cloud annual run rate has topped the $14 billion mark, a gain of approximately $1 billion since the company’s last quarterly earnings announcement and still on track to hit the $20 billion goal the company set for 2018, said Nadella during an investor conference call today. The company calculates this figure by taking revenues generated by Azure, Dynamics 365, Office 365 commercial and other cloud businesses in the last month of a quarter multiply by twelve.
The company’s Intelligent Cloud segment drew in $6.9 billion during the quarter, a year-over-year increase of 8 percent.
“The commercial cloud revenues grew to almost 60 percent of revenues,” observed Jack Gold, principal analyst at J. Gold associates. The gains are an indication “that Microsoft has made the transition to a cloud company effectively and the growth as a percentage of overall revenues will likely continue.”
Gold added that the 94 percent increase in Azure revenue indicates that Microsoft is doing a good job of fending off rivals like Amazon Web Services and Google, preventing them “from impacting its core business clients’ transition to [the] cloud.”
In the Productivity and Business Processes category, which encompasses several of business software and cloud services, sales jumped 10 percent to reach $7.4 billion. Office 365 commercial revenue was up 47 percent and the company reported that its number of consumer subscribers had reached 24.9 million, helping boost sales of the company’s Office consumer product and services sales by 22 percent.
This part of Microsoft’s sprawling business now includes LinkedIn, following the completion of the $26 billion acquisition on Dec. 8, 2016. In the final weeks of the quarter, LinkedIn contributed $228 million in revenue but posted losses of $100 million.
During the call, Nadella said LinkedIn members are engaging with the platform’s hiring solutions in record numbers and demand for its Sales Navigator business-to-business (B2B) sales toolkit is on the upswing. Noting that LinkedIn isn’t yet a profit center for Microsoft, its acquisition “will eventually add upside potential to the core cloud services,” Gold told eWEEK.
In the More Personal Computing segment, which includes Microsoft Windows, Surface, search advertising and gaming businesses, revenue dropped 5 percent to $11.8 billion.
However, within this category, Windows OEM revenue climbed 5 percent as did Windows commercial products and cloud services revenue. Surface sales reached $1.32 billion compared to $1.35 billion last year. Windows Phone hardware revenue plummeted 81 percent.