Cloud-computing growth drives Microsoft quarterly earnings beat

Microsoft reported better-than-expected fiscal Q4 earnings and revenues yesterday on the strength of its cloud business. It was a strong affirmation of the choice of Satya Nadella as CEO and his big bet on the cloud.

Overall revenues were $24.7 billion, and net income was $7.7 billion (non-GAAP). Earnings per share were $0.98. Revenues grew 9 percent, and earnings were up more than 40 percent.

Wall Street analysts had expected earnings of $0.71 and revenues of $24.2 billion. However, the big earnings beat was due in large part to use of losses from a write-down of Microsoft’s Windows Phone business:

The tax rates reflect a $1.8 billion impact related to the utilization of prior years’ losses from Microsoft’s phone business that were not deductible in the years incurred. As a result of this tax item, earnings per share for the quarter increased by $0.23.

That doesn’t diminish the fact that Microsoft’s cloud business is growing fast and performing well and growing faster than rival Amazon’s cloud business.

GAAP vs. Non-GAAP Financials

Source: Microsoft fiscal Q4 financial presentation

Microsoft said its Commercial Cloud “annualized revenue run rate” was just under $19 billion. There was also strong growth for the company’s Office 365 subscription businesses (enterprise and consumer). The company reported 27 million Office 365 consumer subscribers vs. 23.1 million a year ago.

Personal computing revenue was $8.8 billion, down 2 percent on lower mobile hardware revenue. (Microsoft’s mobile phone hardware business is effectively dead.). However, its Windows OEM revenue was up 1 percent, “slightly ahead of the overall PC market,” which is flat to declining. Surface revenue was down 2 percent. 

The company said that search-related revenue grew 10 percent on higher revenue per search and overall query volume. As of June, Bing had a 23 percent share of the US search market according to comScore.

Microsoft recently laid off 3,000 mostly sales-related employees as part of its transition to focus on its cloud computing business.