Microsoft shares soared on Friday, rising more than 10% following the release of its fiscal third quarter earnings report. Although Microsoft Windows revenue fell, demand for its cloud services surged, and it logged an earnings per share and top line that exceeded analyst expectations.
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In its subsequent earnings call, Microsoft management reflected on its ongoing transformation, underscoring a number of key points investors should be aware of. Below are five of the most important takeaways from the call.
Demand for Office 365 continues to surgeIn 2011, Microsoft introduced Office 365, its subscription-based, cloud-based alternative to its traditional Office software. Instead of buying a new suite of Office applications every few years, Microsoft offered its customers the ability to pay for a subscription instead. Demand for Office 365 has been strong since its introduction, and it continued to pick up steam last quarter. During the call, CEO Satya Nadella called particular attention to the success of Office 365 with consumers and a commitment to make Office available on every platform.
Windows revenue was down, butactivationswere upAt least for consumers, the days of paying for Windows are coming to an end. Facing competition from low-cost Chromebooks and mobile devices, Microsoft has offered its hardware partners cheaper versions of its operating system to help keep its platform relevant -- and it appears to be working. Consumer Windows revenue fell 26% during the quarter, but as Nadella pointed out, the number of Windows devices sold rose. Rather than make money on Windows itself, Microsoft is looking to monetize its platform through services.
Business demand for Microsoft cloud services continues to surgePerhaps the single most important aspect of the last quarter was the performance of its commercial cloud business. Microsoft has a number of enterprise-focused cloud services, including Azure, Office 365 for business, and Dynamics CRM. CFO Amy Hood highlighted the performance of the Microsoft cloud business during the call.
Windows is becoming a serviceIn total, the Microsoft Windows business declined fairly significantly during the quarter. Windows-related revenue contracted 22% on an annual basis. But that is not necessarily a bad thing. Although Microsoft may find it difficult to charge customers for a copy of its operating system every few years, it can monetize its platform through services. During the call, Nadella underscored how Microsoft is thinking about its Windows business longer term.
Microsoft accounts for cloud business in a much different way than AmazonDuring the call, an analyst asked management for its take on the competing Amazon cloudbusiness, Amazon Web Services. AWS is a bit different from the Microsoft commercial cloud, and Amazon accounts for it in a different way. Microsoft includes its subscription-based software, whereas AWS is mostly composed of cloud computing and online storage. Nadella highlighted the difference during the call.
The article 5 Things Microsoft Corporation Management Wants You to Know originally appeared on Fool.com.
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