Windows 10 logo. Photo: Microsoft

Shares of Microsoft (NASDAQ:MSFT) were up 10% as of 12:45 p.m. Friday following the release on Thursday of its fiscal-first-quarter earnings report. The Windows maker beat expectations for both its top and bottom lines, as its cloud services continue to add users, and Windows 10 enjoys a robust rate of adoption.

Microsoft earned an adjusted $0.67 per share on adjusted revenue of $21.7 billion. That's down from last year, when Microsoft generated more than $23 billion, but both figures were better than what Wall Street had anticipated. Analysts had been looking for around $0.59 per share on revenue of around $21 billion.

Windows revenue continues to decline as Office and Cloud remain strong
Microsoft's business is now composed of three segments -- productivity and business processes, intelligent cloud, and more personal computing.

Productivity and business processes generated $6.3 billion. The segment, which is mostly composed of Office and Dynamics CRM, saw its revenue decline 3% on an annual basis, but it rose 4% when adjusting for changes in currency. Office remains particularly strong -- Office 365, Microsoft's subscription-based service, enjoyed 70% revenue growth in constant-currency terms. There are now 18.2 million consumers subscribing to Office 365, a gain of about 3 million from last quarter. For around $10 per month, consumers can get access to all of Microsoft's productivity apps on their Windows PCs, Macs, and mobile devices, in addition to ample cloud storage.

Revenue from Intelligent Cloud rose 8% on an absolute basis, and 14% in constant currency, to $5.9 billion. Intelligent Cloud includes most of Microsoft's cloud and server products, such as Azure, Windows Server, and SQL Server. Microsoft Enterprise Mobility -- its mobile device management solution -- saw its customer base more than double on an annual basis.

More personal computing was Microsoft's largest segment, generating $9.4 billion in sales. Still, that was down 17% on an annual basis, and 13% in constant-currency terms. More personal computing is largely composed of Windows-related revenue, as well as Microsoft's device sales, its video game operations, and its search engine Bing.

Revenue from Windows OEMs declined 6%, but that was better than the overall PC market, and better than what Microsoft has seen in recent quarters. (Last quarter, Windows OEM revenue fell 22% on an annual basis.) Windows OEM Pro fell 7%, while Windows OEM non-Pro fell 4%. Phone revenue fell a massive 54% on a constant-currency basis, as Microsoft continues to scale back its mobile phone efforts.

Total gaming revenue rose 6% on a constant-currency basis, but Xbox hardware revenue fell as Microsoft's older console, the Xbox 360, slowly fades into obsolescence. Xbox Live, Microsoft's online network that powers its gaming consoles, saw its monthly active users rise 28% on an annual basis, to 39 million.

Windows 10 continues to gain share, and it's boosting Bing
Falling demand for traditional PCs is obviously pressuring Microsoft's Windows revenue, but a fundamental shift in its business is also having an affect. Since its debut in July, Microsoft has offered Windows 10 free to all consumers with Windows 7 or Windows 8 installed on their PCs.

But it's also driving greater adoption. Microsoft says there are now 110 million devices running Windows 10. For comparison, Windows 8 took about six months to break the 100 million barrier. Given its deep integration with Microsoft's other services, strong Windows 10 adoption is a positive development for the Redmond tech giant.

Microsoft reported that its search-advertising revenue grew 29% on a constant-currency basis, with much of that growth attributable to Windows 10 usage. According to Microsoft, about one-fifth of Bing usage in September came from Windows 10 devices. Bing is built directly into the task bar of Windows 10, and it powers Microsoft's digital personal assistant, Cortana.

Overall, it was a strong quarter for Microsoft, and its stock performance appears justified.