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Microsoft’s bets on Surface, gaming, and LinkedIn are starting to pay off

Microsoft’s bets on Surface, gaming, and LinkedIn are starting to pay off

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Cloud and Office still leading the big growth

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Photo by Sam Byford / The Verge

Microsoft posted the third quarter of its 2018 financial results today, reporting revenue of $26.8 billion and net income of $7.4 billion. Revenue has jumped 16 percent year-over-year, and net income is up a massive 35 percent. As ever, Microsoft’s Office and cloud bets are paying off once again, but surprise increases in LinkedIn and Surface revenue are also playing their part in ensuring Microsoft has a diverse amount of successful products and services.

Microsoft now has more than 135 million active Office 365 business users, alongside 30.6 million Office 365 consumer subscriptions. Google unveiled a new Gmail design this week aimed at business users, but businesses continue to flock to Microsoft’s cloud services and Office subscriptions. Microsoft’s overall server products and cloud services revenue increased 20 percent year-over-year, thanks mostly to a 93 percent jump in Azure revenue.

While Surface didn’t make any big revenue gains in the previous holiday quarter, it’s up 32 percent year-over-year in this latest quarter. Microsoft has once again returned Surface to the important billion dollar business target. The next quarter will be important to ensure it remains at that level, to round off the financial year as a billion dollar business. Microsoft hasn’t launched any new Surface products in 2018, but we’re not even at the half-way point and a Surface Notepad has been rumored to be arriving this year.

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Microsoft has been readying for a gaming future beyond the Xbox, with cloud subscription services being a key target. Xbox software and services revenue has grown 24 percent, and overall Xbox Live active users hit 59 million this quarter. That’s the same as the recent holiday quarter, but it’s an increase of 13 percent year-over-year. Microsoft isn’t revealing Xbox hardware revenue anymore, so it’s still hard to tell how well the Xbox One X launch has been going as the company bundles that data into overall “gaming revenue” now.

Microsoft is clearly continuing to invest heavily in gaming, though. Operating expenses for its “personal computing” division grew by 5 percent this quarter, driven by investments in search, AI, and gaming. It’s not clear what the gaming investments are just yet, but they could be first-party titles for the Xbox or Microsoft’s work towards a “Netflix for games” with streaming and Xbox Game Pass subscription.

LinkedIn has now been included in Microsoft’s earnings reports for a full year now, and the social network was responsible for $1.3 billion of revenue this quarter. That’s a 37 percent increase from the same period last year, and an early sign that Microsoft’s $26 billion data and social networking bet could pay off.

Windows 10 REVIEW embargoed

Microsoft might be ready to consider a world beyond Windows, but that doesn’t mean its operating system isn’t important to the company’s overall revenue. Pro licenses of Windows grew 11 percent this quarter, thanks to what Microsoft describes as a “strengthening commercial PC market.” While business PCs might be in demand, non-pro licenses of Windows dropped 8 percent. Microsoft blames pressure from entry level devices with lower license costs, and the company continues to battle against competition from Google’s low-cost Chromebooks.

Overall, Microsoft’s recent quarter beat analyst expectations and continues the company’s trend of cloud growth and the benefits of switching to cloud-based Office subscriptions. Microsoft will now hold an earnings call at 5:30PM ET / 2:30PM PT, and we’ll update this article with any noteworthy additions.