Microsoft just passed a huge milestone
It's a good day to be Satya Nadella. Microsoft delivered its latest round of financials yesterday evening, and things are generally looking good across the board. Revenue and per-share earnings beat estimates in Q4, but even those aren't the biggest items Microsoft reported. Instead, our focus should be on Office 365, which passed an absolutely massive milestone during the quarter.
In a call with investors after the financials dropped, Microsoft CTO Amy Hood said that Office 365 subscriptions are for the first time making more money than conventional software licenses for Office products. No matter which way you slice it, that's impressive, because it means that a big gamble for Microsoft is paying off.
Make no mistake: Microsoft certainly rubbed some the wrong way when it first rolled out subscription plans for Office 365. Those subscriptions were indicative of a larger shift at Microsoft, too – with the PC market plateauing, CEO Satya Nadella began to transition the company's focus toward the cloud, which is at the core of Office 365. It was a painful transition, with Microsoft making thousands of layoffs as it began to shift focus.
In the long run, though, it's a shift that seems to have worked out. Not only has Microsoft turned Office 365 into a success, but this latest round of financials shows that the company can flourish as PC sales seem to stagnate. Remember: 10 years ago, Microsoft's fate was seemingly tied to PCs, so it's all the more impressive that Microsoft can beat expectations in a world where PCs seem to be losing some degree of prevalence.
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Even though we can count this recently-ended quarter as a success for Microsoft, there are still some sectors where it can improve. Surface sales, for instance, were down 2% year-over-year, but it'll be interesting to see what that figure does in a year from now, when new products like the Surface Laptop and Surface Studio have had more time on shelves.
It's clear, though, that cloud computing is going to be a major market for Microsoft, as sales from its Intelligent Cloud unit were up 11% year-over-year. Detractors can say what they will about the idea of Windows as a service, but that strategy seems to be working out well for Microsoft. With that in mind, expect to see more big moves from Microsoft's cloud business over the next year.