Cloud Momentum Paid Off for Microsoft in Q4

Thanks to growing demand for its cloud offerings, Microsoft closed out fiscal 2016 higher than analyst expectations.

Microsoft financials

Microsoft generated $22.6 billion in revenue during the fourth quarter of fiscal 2016, beating Wall Street analyst estimates by nearly a half-billion dollars. Analysts had expected the Redmond, Wash., technology giant to rack up sales of $22.14 billion.

Net income of $5.5 billion, or 69 cents per share, handily surpassed analyst estimates of 58 cents per share. Satya Nadella, CEO of Microsoft, (pictured) once again credited the company's cloud computing portfolio for lifting the software maker's financials during the quarter.

"This past year was pivotal in both our own transformation and in partnering with our customers who are navigating their own digital transformations. The Microsoft Cloud is seeing significant customer momentum, and we're well positioned to reach new opportunities in the year ahead," said Nadella in a statement.

Revenue attributed to Azure grew 102 percent, according to the company. Suggesting that customers are increasingly shifting their enterprise workloads to the company's cloud, Microsoft said that Azure compute usage doubled compared to the same year-ago period. All told, the Intelligent Cloud segment pulled in $6.7 billion in revenue, a year-over-year increase of 7 percent.

Microsoft's Personal Computing segment suffered setbacks caused by the company's declining phone business. Revenue slipped 4 percent to $8.9 billion during the fourth quarter, due in part to a 71 percent drop in phone sales.

"Microsoft is putting a lot of executive support behind its cloud-based strategy—the same as it has for mobile," said Dr. Hannu Verkasalo, CEO and founder of Verto Analytics, in a research note sent to eWEEK. "The difference is that the tactics and execution have been much better for cloud-based solutions so far. The question remains whether they will be able to repeat the same in mobile after some trial-and-error years."

According to Verto's latest data, 224.5 million users in the United States accessed the company's services at least once last month, a reach of 90.7 percent. The average user spends 28.4 hours per month using Microsoft's services.

Microsoft has some catching up to do in terms of mobile engagement, according to Verkasalo. Only 11 percent of the time spent on the company's services take place on a mobile device, trailing Facebook (40 percent) and even beleaguered Web pioneer Yahoo (19 percent), he said.

There were some bright spots in Microsoft's Personal Computing business. Windows OEM sales excluding Pro editions jumped 27 percent while Windows OEM Pro sales rose 2 percent. Surface sales rose 9 percent on demand for the company's Surface Pro 4 tablet and Surface Book two-in-one hybrid laptop.

Anchored by Office and Dynamics, the Productivity and Business Processes segment generated $7 billion in revenue for the company, a 5 percent year-over-year gain. Commercial sales of the cloud-backed Office 365 productivity suite jumped 54 percent.

For all of fiscal year 2016, Microsoft reported revenue of $92 billion, beating estimates of $91.52 billion. Net income came in at $22.3 billion or $2.79 per share, 12 cents above analyst expectations.

Pedro Hernandez

Pedro Hernandez

Pedro Hernandez is a contributor to eWEEK and the IT Business Edge Network, the network for technology professionals. Previously, he served as a managing editor for the network of...