Microsoft revenue up 1% as Cloud business supports growth

Microsoft revenue in Q2 fiscal 2016Software giant Microsoft said its revenue was $24.09 billion (+1 percent), while net income touched $5.2 billion (+4 percent) in Q2 ended December 31, 2016.

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“Our customers are seeing greater value and opportunity as we partner with them through their digital transformation,” said Satya Nadella, chief executive officer at Microsoft. “Accelerating advancements in AI across our platforms and services will provide further opportunity to drive growth in the Microsoft Cloud.”

Productivity and Business Processes revenue of $7.4 billion (+10 percent)

Office commercial products and cloud services revenue up 5 percent
Office 365 commercial revenue up 47 percent
Office consumer products and cloud services revenue up 22 percent
Office 365 consumer subscribers at 24.9 million
Dynamics products and cloud services revenue up 7 percent
LinkedIn contributed revenue of $228 million during December 8-31, 2016

Intelligent Cloud revenue of $6.9 billion (+8 percent)

Server products and cloud services revenue up 12 percent
Azure revenue up 93 percent
Enterprise Services revenue fell 4 percent

More Personal Computing revenue of $11.8 billion (–5 percent)

Windows OEM revenue up 5 percent
Windows commercial products and cloud services up 5 percent
Search advertising revenue up 10 percent
Gaming revenue fell 3 percent

TBR, in a research note said, expanding usage of Office 365, Dynamics 365 and Azure demonstrate Microsoft’s ability to effectively increase share of wallet, offsetting license revenue declines. “Enterprise adoption of Windows 10 coupled with new monetization of LinkedIn, which contributed $228 million to quarterly revenue, and investment in high-growth areas such as artificial intelligence and security will further this achievement,” said Kelsey Mason, analyst.

ALSO READ: Microsoft revenue analysis by TBR

The increase in subscription business continues to mitigate declining applications license sales, positively impacting Microsoft’s top line, with all three reporting segments surpassing company-provided revenue guidance given at the end of CY3Q16.

TBR noted that the growth in traditional server software spurred by hybrid IT engagements dampers some of the impact to Microsoft’s software margins. However, Microsoft will continue to face the reality of lower-than-historic margins as cloud makes up a larger portion of revenue.

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