Microsoft Q3 2016 Earnings Report Shows Windows Phone Drop, Surface Rise

Shares in Microsoft, once the world's largest company, were down 4.3 per cent in after-hours trade following the results, which were weaker than expectations. Consensus estimates had pegged Microsoft returning $0.64 in EPS.

Microsoft's cloud strength highlighted the third quarter results with the total revenue of $22.1 billion non-GAAP coming from three operating groups. In the past three months, Microsoft has benefited from growth in subscribers and higher sales for each Office 365 license.

Office commercial products and cloud services revenue grew 7 per cent in constant currency and Office consumer products and cloud services revenue 6 per cent. Gaming revenue grew 6 percent in constant currency, with 11 percent increase in game revenue partially offset by reduced revenue from hardware sales.

BENGALURU/SAN FRANCISCO - Microsoft reported results that fell short of analysts' expectations, showing its high-profile cloud business can not quite make up for a slowing personal-computer market. 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.

"Organizations using digital technology to transform and drive new growth increasingly choose Microsoft as a partner", said Satya Nadella, Microsoft's CEO, said in a statement.

Meanwhile, the company's core businesses, sales of the Windows operating system to PC makers and the Office productivity suite, have been in decline, though one not as steep as the beleaguered PC market would suggest.

The annualised revenue run rate for commercial cloud was more than $10 billion, with the firm well on its way to achieving its $20 billion target for its 2018 financial year. Phone revenues were down a hefty 46 per cent from a year ago.

Phone revenue dropped 47% to $746 million and the number of units sold plunged 73% to 2.3 million phones sold. Microsoft is thanking the Surface Pro 4 and Surface Book for that timely boost.

Despite Azure revenue growing by 120% in constant currency and usage of both Azure Compute and Azure SQL database more than doubling year-over-year, this is actually a decline from 140% growth from the last quarter. 35 percent of search revenue in March was driven by Windows 10, indicating that the Bing and Cortana integration in Windows 10 is yielding dividends. Xbox Live monthly active users rose to 46 million at a growth rate of 26 percent.

Truly, this is a case of "how far have the mighty fallen", as Nokia has seen itself decline from being a worldwide leader in the mobile phone space, to merely a Southeast Asian power in emerging markets, to selling its phone business to Microsoft, to Microsoft reporting rapidly declining phone sales stats for its Lumias.

Source: Microsoft Q3 2016 Earnings Report Shows Windows Phone Drop, Surface Rise