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Microsoft’s Office 365 Growth Story in Fiscal 3Q16

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Productivity and Business Processes in fiscal 3Q16

Microsoft’s (MSFT) Productivity and Business Processes segment encompasses the cloud version of Office, Office 365, and the traditional version of Office. This segment also includes Microsoft Dynamics and Dynamics CRM Online. In fiscal 3Q16, this division grew by 6% billion, which is $6.5 billion in constant currency terms.
Microsoft's Office 365 Growth Story in Fiscal 3Q16

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Microsoft Office 365’s growth in fiscal 3Q16

As we know, Microsoft primarily generates its cloud revenues from Office 365, Dynamics CRM, and Azure, its cloud-computing platform. Microsoft Dynamics’ revenue grew by 9% in constant currency terms. Fiscal 2Q16 marked the sixth straight quarter when the Dynamics CRM Online seat additions more than doubled on a YoY (year-over-year) basis. Customers shifting to Office 365 continued to lead to the expansion of Office 365’s subscriber base in 3Q16. Microsoft stated that Office 365’s subscriber base grew by 79% YoY to 22.2 million in fiscal 3Q16, up from 12.4 million in fiscal 3Q15.

The office suite space is dominated by players like Microsoft, Google (GOOG) (GOOGL), Salesforce.com (CRM), and Box (BOX). (For more on this, you might be interested in “How Is Microsoft Office 365 Faring in the Office Suite Space?“)

Office 365 continues to show steady and consistent growth, which has benefitted the company and is thus expected to be a key driver of revenue for Microsoft. Investors looking for exposure to Microsoft might consider investing in the Technology Select Sector SPDR ETF (XLK). While XLK invests ~10.6% of its holdings in Microsoft, it also has an exposure of ~38% to application software.

In the next part, we’ll analyze Microsoft’s stock reaction after its latest results.

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