Microsoft delivered sturdy cloud services growth in its third quarter earnings report last night, but group revenue and earnings disappointed, with shares falling on the announcement of $3.8bn (£2.65bn) profits.
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Instead, revenue for the January-March quarter fell 6% to $20.5 billion, while profit plunged 25% to $3.76 billion.
A year prior, Microsoft posted $21.72 billion in revenue, $6.78 billion in operating income, $5.1 billion in net income and $0.62 earnings per share. Analysts surveyed by FactSet were expecting adjusted earnings of 64 cents a share and revenue of $22.1 billion.
The news drove down Microsoft shares 4% in after-hours trading, to $53.18. Overall, the company’s Intelligent Cloud business grew 3% (or 8% in constant currency) to $6.1 billion.
Microsoft’s array of business-focused cloud-computing businesses was on pace at the end of the quarter to take in about $10 billion in a full year.
In the first quarter of 2016 the PC market declined 10 percent and the impact of that was seen even more clearly earlier this week when Intel reported that it was having to cut 11 percent of its global workforce. Revenue from server products and cloud services is up five percent in constant currency, while the number of Enterprise Mobility customers more than doubled to 27,000 and the installed base almost quadrupled year over year. Office 365 added 1.6 million subscribers to reach 22.2 million with revenues climbing by almost 63%.
Hood said operating income in the company’s Office 365 and Dynamics businesses declined by 7%. The revenue from Surface increased 61% in constant currency, driven mainly due to increase in sales of Surface Book and Pro 4.
These non-cloud product and services are Windows Server, SQL Server and System Center as well as Azure and Enterprise Services.
In the same period of 2015, the company sold 8.6 million Lumias.
Phone revenue declined 46 percent. Microsoft follows Amazon in revealing that the cloud has lifted its fortunes beyond that major milestone. The commercial cloud is on track for over $10bn in revenue for the year starting in March, it said, up from the $9.4bn figure it gave last time.
“While investors wanted more, Microsoft had an impressive quarter and repeated what they did in prior quarters related to the combination of cloud, Azure and Windows”, said Patrick Moorhead, an analyst with Moor Insights & Strategy, in an e-mail.
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Despite increased revenues and income, the company saw its shares fall after it missed earnings targets.
