Microsoft Beats In Its FQ3 With Revenue Of $21.7B, EPS Of $0.61

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Today following the bell, Microsoft reported its fiscal third quarter financial results, including revenue of $21.7 billion and earnings per share of $0.61. The street had expected Microsoft to earn $0.51 per share on revenue of $21.06 billion.

Microsoft, up a point in regular trading, is now up just under three percent in after-hours trading following its earnings beat.

Compared to its year-ago fiscal third quarter, Microsoft’s revenue’s grew 6 percent. The company had operating income of $6.6 billion, and gross margin of $14.6 billion. Microsoft wrapped up the fiscal period with cash and equivalents of $95.4 billion.

To understand the company’s quarter, we’ll proceed in pieces. First up hardware, then cloud, then Office, and then Windows. That’s Microsoft these days, three platforms and some gadgets.

Surface And Phone

Microsoft reported $713 million in Surface revenue during its fiscal third quarter, up 44 percent from the year-ago period, if under a holiday-powered fiscal second quarter for the company. The company sold 8.6 million Lumia phones, generating a total of $1.4 billion in top line from its handset business.

Microsoft did not break out Xbox sales numbers, instead citing a slightly lame Xbox Live usage metric.

Cloud

Microsoft’s Office 365 product had a huge quarter with consumers, growing 35 percent compared to the sequentially preceding quarter to 12.4 million subscribers.

Search ad incomes at Microsoft grew by 21 percent. I presume that that means that Bing is still on its promised path to stop losing money.

The company’s “Commercial Cloud” revenue grew 106 percent compared to the year-ago period, to an annualized run rate of $6.3 billion, up from $5.5 billion in the sequentially preceding fiscal quarter. That $800 million accretion is a 14.5 percent increase on a sequential quarter basis.

Windows

Windows OEM revenue fell 19 percent from the ‘Pro’ space, as last year the end of support for Windows XP drove sales of Windows itself. Windows volume licensing itself fell 2 percent. Windows OEM revenue from consumers dropped a steeper 26 percent, due to what Microsoft calls “inventory drawdown and ongoing mix shift to opening price point devices.”

Obviously, with Windows 10 just around the corner, Microsoft is likely less focused on its short-term Windows 8.x revenues than its future platform, but Windows top line remains a very important revenue well for the firm.

Office

Total Office Commercial revenue actually fell in the quarter by 2 percent — it grew a point if you hold currency rates steady from a year ago — which Microsoft explains by saying the following: “transactional revenue was impacted by the continued transition to Office 365 and declines in business PC sales following the XP refresh cycle.” Again, the specter of XP remains valid a year after its saw its plug pulled.

Summing

A strong quarter from Microsoft, with better-than-expected revenue growth and profitability buttressed by quickly growing cloud revenues from both consumers, and business customers. The share price bump that Microsoft is currently enjoying should be held in contrast to the 9 percent it fell the last time that it reported earnings.