Revenue in the more personal computing segment, which includes Windows and Xbox, rose 1% to $9.5 billion, above the $9.17 billion average estimate of four analysts polled by Bloomberg, bolstered by increases in search and Xbox Live revenue. The stock has significantly rebounded under Nadella and analysts believe that Microsoft returning to its former glory is no longer a pipe dream despite recent cloud disappoints.
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Productivity and Business Processes revenue was $6.5 billion, up 1 percent year on year, with operating income of $3.0 billion, down 7 percent. And operating profits for the division dropped by 14 per cent, in part reflecting non-cloud products included under its umbrella, such as traditional server software.
Wunderlich’s Robert Breza reiterated their hold rating and $55 price target, but he expects the company’s focus on capital allocation, strict budgeting and cloud business should placate shareholders. However, on an adjusted basis, revenue rose 1.6% to hit $22.08 billion in the latest quarter. Consumer subscribes have almost doubled, from 12.4 million to 22.2 million.
Even last quarter Microsoft only sold 4.5 million Lumia devices, which is hardly a huge number compared to its contemporaries, and was down from 10.5 million during the same period previous year. Improved profit margins were driven by lower expenses in Microsoft’s phone business, which the company scaled back drastically past year, and sales of Surface portable devices.
Microsoft says that it now has 22.2 million Office 365 consumer subscribers, which helped Office consumer products and cloud services see a six percent rise in revenue in constant currency.
Revenue from Microsoft’s Intelligent Cloud unit that encompasses its flagship Azure infrastructure and platform as a service grew three per cent to $6.1bn in Q3.
One slower quarter of Azure adoption does not indicate a trend of decline, but given the company’s increased push of its cloud products this will come as somewhat of a disappointment.
Investors are unhappy not only because Microsoft missed on earnings for the first time in 10 quarters, but also because the company lowered guidance for the current quarter. What has always been Microsoft’s bread and butter is the enterprise, where Office 365 commercial seats jumped 57% last quarter.
“We’re making Office 365 more than a world-class productivity and communications service”, he said.
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The worldwide business of Microsoft was hurt by a strong USA dollar, as well as declining PC sales. The company also reports that there was a $1.5 billion impact from a combination of revenue deferrals due to Windows 10 upgrades and restructuring charges.
