Microsoft posted revenue of $36.9 billion for the December quarter, up 14%, and surpassed Wall Street’s expectations with profits of $11.6 billion and earnings per share of $1.51.
The stronger-than-expected quarter was driven in part by a 39% increase in the company’s Commercial Cloud revenue, which rose to $12.5 billion in the quarter. This metric, calculated apart from the company’s divisional results, includes products such as Office 365 Commercial, the Microsoft Azure cloud platform, Microsoft Dynamics business applications and LinkedIn.
Analysts expected Microsoft to post earnings of $1.32 per share on revenue of $35.67 billion in the quarter.
Shares of Microsoft rose nearly 3 percent in after-hours trading, to $172.94, pushing its market value to more than $1.3 trillion.
Microsoft CEO Satya Nadella, speaking with analysts on a conference call after the earnings release, noted that spending on technology as a percentage of GDP is projected to double over the next decade. He said Microsoft plans to capitalize on this growth by appealing to customers with “a business model that is trusted and aligned with their success in this new era.”
Nadella referenced Microsoft’s high-profile win of the Pentagon’s $10 billion JEDI cloud computing contract, noting that the Department of Defense “chose Azure to support our men and women in uniform at home, abroad and at the tactical edge.” He did not address Amazon’s protest of the contract award in his prepared remarks. Amazon is asking a court to keep Microsoft’s work from proceeding pending its appeal.
Microsoft’s “More Personal Computing” Division, which includes Windows, Xbox, Surface and related businesses, rose in the holiday quarter to $13.2 billion in revenue, up from just under $13 billion a year ago, reclaiming the title of the company’s largest division, at least for the moment.
In this division, the company said gaming revenue fell by $905 million, or 21%, which works out to a result of $3.4 billion this quarter, down from $4.3 billion previously. This is notable in part because the holiday season is traditionally the peak time for console sales. However, the company unveiled its next console, Xbox Series X, in early December 2019. Microsoft said its game business also faced “a high prior year comparable primarily from a third-party title,” which was the blockbuster Fortnite online multiplayer game.
MORE: Xbox revenue falls 21% as Microsoft gears up for Xbox Series X debut
The company’s Intelligent Cloud Division came in with $11.9 billion in revenue, up from $9.4 billion a year ago. This includes Windows Server, SQL Server, and Microsoft Azure. Within this division, the company’s server products and could services revenue was up 30 percent, as a sign of strength in the company’s hybrid cloud business.
Microsoft’s Productivity and Business Processes Division, including Office Commercial and Consumer products, posted revenue of $11.8 billion, up 17 percent.