Microsoft earnings edge higher on cloud, LinkedIn

SAN FRANCISCO — Microsoft continued its slow and steady pivot away from its legacy software business, getting a year-end boost from sales in cloud services and its recent purchase of LinkedIn.

The Redmond, Wash-based tech giant reported adjusted earnings of per share of 83 cents on adjusted revenue of $26.1 billion Thursday.

Analysts had predicted 79 cents and $25.2 billion, according to S&P Global Intelligence.

Microsoft shares (MSFT) shares rose 1% after hours.

CEO Satya Nadella, who marks three years at the helm of Microsoft next month, is starting to see some daylight in his turnaround mission.

Revenue gained 1% to $24 billion, and second-quarter net income rose 4% to $5.2 billion.

Driving growth was the company's enterprise cloud business, which was up 8% to $6.9 billion and driven largely by a 93% surge in revenue from Microsoft Azure, which continues to gain on market powerhouse Amazon Web Services.

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Other bright spots included growth from Microsoft's suite of Office services and products, which were up 10% to $7.4 billion. The company's bold $26 billion acquisition of professional networking site LinkedIn, which closed December 8, contributed $228 million in revenue since that date.

On a call with investors, Nadella said that the company's mission with LinkedIn is "to ensure that the innovation roadmap we have drives member value, which also means an increase in engagement on both mobile and desktop."

Despite the strong quarter, personal computing continues to be a drag on the company as PC sales globally continue to slow.

Revenue in the company's more personal computing division was down 5% to $11.8 billion, driven primarily by lower phone revenue as the company continues to move toward a cloud-first vision but less so a mobile-first strategy.

Despite the last quarter including the holiday season, Microsoft's gaming revenue decreased 3% due to lower Xbox console revenue.

"Some of the standouts (in the quarter) were huge increases in Office 365, Azure cloud, Bing search and even some modest growth in Windows OEM revenue," says Patrick Moorhead, president of Moor Insights & Strategy.

"The only real blemish is the continued drain by winding down the phone business," he says. "I was expecting the Surface business to be doing better, but Surface Studio was in short supply and Surface Book and surface Pro only had minor enhancements."

Overall, the quarter shows how Nadella's slow and steady approach has continue to reward the stock.

"Nadella has built up a lot of credibility and goodwill due to his leadership and vision," says Josh Olson, analyst with Edward Jones. "So the market's continuing to give him credit for that."

Nadella's biggest stated target is hitting a $20 billion annualized run rate for the company's cloud business by 2018. With Microsoft announcing that it had just topped the $14 billion mark for cloud, "he's certainly on track," says Olson.

Forrester vice president of research Chris Voce says that "looking for crazy growth from a company like Microsoft isn't the right measurement. Continued growth is what investors are more comfortable with, because if you hit explosive growth you just have to do it again."

Follow USA TODAY tech reporter Marco della Cava @marcodellacava