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The Q2 MSFT earnings that came out after the close today (Monday) were in line with Wall Street expectations on earnings and beat slightly on revenue.
Investors gave Microsoft the thumbs down. But the sour reaction was a bit unfair.
But Q2 Microsoft earnings were not bad. They show CEO Satya Nadella's changes are going as planned. The areas that did well are where Microsoft Corp. is headed.
And investors also need to consider Microsoft's strategy for the future, which includes Windows 10 and the impressive HoloLens, a new holographic-based computing platform.
Microsoft had earnings per share (EPS) of $0.71, exactly what analysts had forecast. It's a 9% decline from the same period a year ago. Revenue was $26.5 billion, just above expectations for $26.32 billion.
The Redmond, Wash.-based tech giant also said it would complete its current $40 billion share buyback program by the end of 2016.
Q2 MSFT Earnings Show an Evolving Business
With this earnings report, you can see the transformation of Microsoft's business model. For example, sales of consumer Office products fell 25%, while subscribers to the cloud version, Office 360, rose 30% to 9.2 million. That's an increase of nearly 2 million over the previous quarter.
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Windows Phone revenue declined by 61% as a result of the closing of the deal to buy Nokia's devices division. But sales of Lumia smartphones were up slightly. Microsoft still has some work to do to gain a stronger presence in mobile, but at least is holding its own for now.
Commercial cloud revenue, a significant growth center for Microsoft now, grew 114%. This segment grew 128% last time, so it's definitely on the right track.
"It looks like they had good growth in terms of their cloud business. I think the area we're really focusing on is that space, in terms of its growth and how much they cannibalize their core windows enterprise server business," Dan Morgan, senior VP of Synovus Trust, told CNBC.
Microsoft also has to be pleased with its Surface Pro 3 results. The company said strong sales of that heavily marketed device pushed revenue in the Surface unit up 24%.
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