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Microsoft’s Office 365 Grew 70% in Fiscal 1Q16

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Oct. 27 2015, Updated 9:08 a.m. ET

Productivity and Business Processes in 1Q16

Earlier, we discussed Microsoft‘s (MSFT) new reporting structure that came into effect from fiscal 1Q16. Microsoft’s “Productivity and Business Processes” operating segment encompasses Office as well as Office 365 for commercial and consumer customers. It also includes Microsoft Dynamics and Dynamics CRM Online. This segment generated revenues of $6.31 billion, a fall of 3% on a YoY (year-over-year) basis. However, in constant currency terms, it grew by 4%.

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Owing to the continued transition towards the cloud, Microsoft’s Office commercial products and services faced a 2% fall in their revenues on a YoY basis. Meanwhile, Office consumer revenue fell by 13%. In constant currency terms, revenue for Office commercial products and services grew by 5%, while Office consumer revenue fell by 4%. Microsoft stated that its Office consumer outperformed the consumer PC market.

Office 365 is the star performer in 1Q16 with 70% growth

Microsoft primarily generates its cloud revenues from Office 365, Dynamics CRM, and Azure—its cloud-computing platform. As customers continue to shift to Office 365, Office 365 subscriber base will see expansion. In 1Q16, Microsoft stated that Office 365 grew by approximately 70%, with its subscriber base rising to 18.2 million. In fiscal 4Q15, Office 365 added ~3 million customers, bringing its subscriber base to over 15 million. In 1Q16, Office 365 added 3 million subscribers.

In 1Q16, Microsoft’s Office Mobile exceeded 200 million downloads on Apple’s (AAPL) iOS and Google’s (GOOG) Android.

Growth in Dynamics CRM online enterprise base

In 1Q16, Microsoft’s Dynamics grew 12%. Its Dynamics CRM Online enterprise installed base grew over three times on a YoY basis. Microsoft’s Dynamics business is expected to get a boost by its recent acquisition of Adxstudio, announced on September 28, 2015.

Adxstudio has been a partner of Microsoft’s Dynamics business, providing web portals, application lifecycle management solutions, and online engagement solutions for Microsoft Dynamics. Before Adxstudio, Microsoft acquired FieldOne in July 2015. FieldOne was a vendor of software that manages worker and customer activities in the field. The acquisition was to boost Microsoft’s Dynamics experience.

In the recent past, Microsoft wanted to acquire Salesforce.com (CRM) to boost Microsoft Dynamics. However, the acquisition didn’t materialize.

The PowerShares QQQ Trust (QQQ) has an 8% exposure to Microsoft.

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