Microsoft CEO Satya Nadella’s “mobile first, cloud first” strategy shows early signs of paying off. Nadella took over for Steve Ballmer in February, and after his second full quarter as chief executive, the software maker's cloud revenue saw triple-digit growth.
Microsoft on Thursday reported fiscal first-quarter profit of $4.54 billion, or 54 cents per share, beating Wall Street estimates by 5 cents per share, on revenue of $23.2 billion.
Commercial cloud revenue, from products like Office 365, Azure and Dynamics CRM, grew 128 percent from a year ago. “We are the only company with cloud revenue at our scale that is growing at triple-digit rates,” Nadella said during an earnings conference call.
Analysts said cloud revenue will become increasingly important for Microsoft as Windows PCs give way to mobile devices for everyday Internet access. "Cloud continues to put fuel in the engine for Microsoft as Nadella looks to steer this company towards its next chapter of growth," Daniel Ives, an analyst at FBR Capital Markets & Co., said. "While challenges remain, especially on the consumer front, we believe this quarter was another step in the right direction for Microsoft."
The Redmond, Washington-based company’s two main segments, Devices and Consumer and Commercial, both saw overall strong growth during the first quarter.
In Devices and Consumer, Office 365 Home and Professional subscribers totaled more than 7 million, up more than 25 percent from the previous quarter. Computing and Gaming hardware was driven mostly by higher Surface and Xbox console revenue. Total Commercial revenue grew 10 percent to $12.28 billion, driven by server products, which saw a revenue increase of 13 percent.
"In light of recent negative earnings results from tech bellwethers Oracle, IBM, SAP, VMware, and EMC, we believe Microsoft is bucking the trend and would label these September results as a solid accomplishment in a choppy IT spending environment," Ives said.
Microsoft still faces challenges in mobile. Within its phone unit, the company sold 9.3 million Lumia smartphones, representing modest growth over the prior year, driven mostly by sales in Europe from gaining share in lower-priced devices. Device and Consumer licensing revenue decreased $391 million, or 9 percent, largely due to a $176 million decline in Windows Phone revenue.
Meanwhile, Windows original equipment manufacturer revenue, or licenses to PC manufactures, fell 2 percent. "The core bread and butter PC business for Microsoft faces inherent, Kilimanjaro-like growth challenges over the coming years, which speaks to Nadella’s aggressive move into the cloud, mobile, and further away from the company’s traditional DNA," Ives said.
Microsoft expects consumer licensing revenue to fall between $4 billion and $4.2 billion in its second quarter.