Microsoft announced solid third-quarter fiscal results Thursday, coming out ahead of analyst expectations.
Analysts had expected a somber performance of 3 percent growth to $21.06 billion in revenues and earnings per share (EPS) of $0.51. Instead company revenues rose 6 percent year-over-year to $21.7 billion and EPS came in at $0.61 for the quarter. Gross margin increased 1 percent.
Like other US companies this quarter, Microsoft blamed currency headwinds (foreign exchange rates on a strong dollar) for negatively impacting revenues. The company said revenue would have grown 9 percent and margin would have increased 4 percent if foreign exchange rates were not a factor.
The Devices and Consumer division saw revenue increase 8 percent year-over-year to $9.0 billion.
Bing paid search advertising revenue rose 21 percent year-over-year, with Bing market share hitting 20.1 percent in the US, according to comScore. Microsoft, again, credited higher search volume and revenue per search for the revenue increase. (Paid search revenue rose 23 percent the previous quarter.) Last week, Yahoo and Microsoft renewed their search deal for the next five years with some adjustments. There was no mention of display advertising performance in the release or earnings call slides, which would seem to indicate it continued to decline.
Office 356 consumer subscribers increased 35 percent to over 12.4 million, up from 9.2 million the previous quarter. Lack of support for Windows XP and slowing PC sales contributed to continuing declines in Windows licensing revenue, which was off 24 percent from the prior year at $3,476.
Xbox Live usage rose over 30 percent and Minecraft drove first-party game revenue up 49 percent year-over-year.
Surface revenue jumped 44 percent to $713 million, thanks to the success of the Surface Pro 3.
Overall computing and gaming hardware revenues, however, were off 4 percent at $1.8 billion. Xbox platform revenue was off 24 percent against last year’s post launch quarter.
Phone revenue came in at $1.4 billion, with 8.6 million Lumia devices sold. That’s down from a high of $2.3 billion in phone revenue and 10.5 million Lumia handsets sold the previous quarter.
Commercial revenue increased 5 percent to $12.8 billion, driven by strong commercial cloud revenue growth, which jumped 106 percent and is on track to bring in $6.3 billion annually.
Microsoft has now had seven straight quarters of triple-digit growth in commercial cloud revenue. Windows performance continued to show weakness on the commercial side as well as the company transitions to the Office 365 subscription model and the PC market slows.
“Customers continue to choose Microsoft to transform their business and as a result we saw incredible growth across our cloud services this quarter,” said Satya Nadella, chief executive officer at Microsoft. “Next week at Build we’re excited to share more about how we’re empowering every individual and organization on the planet to achieve more with the next generation of our platforms.”
The company also said it returned $7.5 billion to shareholders in share repurchases and dividends. Microsoft stock was trading up in after-hours trading.
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