Though the company saw a 12% decline in revenue, largely because it sold fewer smartphones and fewer copies of Windows, it showed 8% growth in its cloud business. Microsoft reported net income of $4.62 billion, or $0.57 a share, compared with $4.54 billion, or $0.54 cents a share, in the same period a year ago. Revenue fell to $20.38 billion from $23.2 billion in the previous year.
It was clear, however, that investors were more encouraged by the cloud results than deterred by any of the company's other segments. Its stock price, which had been relatively steady from the beginning of October through when Microsoft reported on Oct. 22, jumped after the report and finished the month up 18.9%, according to S&P Capital IQ data.
It's all about the cloud
While Microsoft's increased earnings per share likely encouraged some investors, the real story is how the company has turned a corner with its cloud business. That segment, which Nadella has made a priority, has proven that it can lead the brand through the potential continued slowdown in the traditional PC business.
"We're seeing great traction with businesses who want to bring Microsoft's cloud, mobile device management technology and data analytics together to improve security and productivity resulting in almost 70% year-over-year growth in our commercial cloud run rate," said COO Kevin Turner in the earnings release.
Daniel Ives, an analyst at FBR Capital Markets, told The New York Times he was encouraged by the company's growing profits but said he was especially pleased with its crowd growth.
"Cloud is the epicenter of the growth story," Ives said.
Nadella is getting it done
In many ways, Microsoft's first-quarter results show that Nadella's efforts are paying off. He led the company's increased focus on the cloud, and while it's not his only major initiative, it may be his most important one.
The CEO has proven that the company's future is not tied just to PC sales or even the success of Windows. With the cloud, Nadella has led his company to a new source of revenue that could fuel its growth going forward and investors clearly believe the story.
Daniel Kline owns shares of Microsoft. The Motley Fool owns shares of Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.