Microsoft Cloud Drives $22.6 Billion In Revenue

Microsoft's $1 Billion-Plus Acquisitions: 9 Big Bets

Microsoft reported fourth-quarter earnings for its 2016 fiscal year on July 19. Revenue reached $22.6 billion (non-GAAP) and net income totaled $5.5 billion.

Earnings were higher than anticipated. The average Wall Street prediction for Microsoft's fourth quarter 2016 revenue amounted to $22.1 billion, Reuters reported.

Microsoft's cloud business was the primary driver behind this growth. Revenue for the company's Intelligent Cloud division hit $6.7 billion, an increase of 7%.

Highlights for this sector include Microsoft Azure, which grew 102% and more than doubled its usage year-over-year. Server products and cloud services were up 5%, and Enterprise Mobility customers nearly doubled from last year and now exceed 33,000.

[Read: Microsoft beat the government in its overseas email lawsuit.]

"The past year was pivotal in both our own transformation and in partnering with our customers who are navigating their own digital transformations," said CEO Satya Nadella in a statement. "The Microsoft Cloud is seeing significant customer momentum and we're well positioned to reach new opportunities in the year ahead."

Nadella has made cloud computing a priority for Microsoft since he took leadership of the tech giant about two years ago. Under his leadership the company has undergone several organizational and leadership changes as he enacted his mobile-first, cloud-first vision.

Revenue for Microsoft's productivity and business processes division grew 5% to hit $7 billion, and the Office products had a profitable quarter.

Office commercial products and cloud services grew 5% and were largely driven by commercial revenue for Office 365, which grew 54%. Office consumer products and cloud services were up 19%, and consumer subscribers for Office 365 hit 23.1 million.

The success of Microsoft's productivity and cloud divisions offset losses in the More Personal Computing sector, which dropped 4% to hit $8.9 billion. Much of the loss was due to phone sales, which declined 71%.

However, not all news was bad for More Personal Computing. Windows OEM non-Pro revenue was up 27% and Windows OEM Pro revenue increased 2%. Surface revenue grew 9%, propelled by Surface Pro 4 and Surface Book, and the number of monthly active users on Xbox Live reached 49 million.

Windows 10 also drove gains in search advertising revenue, which grew 16% excluding traffic acquisition costs.

Microsoft closed out its fiscal year on June 30, with $92 billion in revenue (non-GAAP) and $22.3 billion in net income.

Going forward, the company plans to continue building its cloud business and expanding its services in the productivity space. Nadella recently oversaw Microsoft's largest acquisition with the June purchase of LinkedIn for $26.2 billion.

Nadella claims the LinkedIn deal will further Microsoft's efforts to transform productivity and business processes. He anticipates the integration of LinkedIn and Office 365 will create new opportunities to monetize through individual and organization subscriptions, and via targeted advertising.

Microsoft may continue to prove itself as the dominant organization for enterprise cloud customers, but there will be several challenges outside the cloud space, particularly with Windows 10 and its mobile business.

Originally, Microsoft planned to have Windows 10 on one billion devices by 2018, three years from the date of its initial launch. However, company officials have admitted it will take longer than three years to reach this milestone, ZDNet reported.