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Microsoft this afternoon posted revenue of $25.7 billion for the December quarter, after adjusting for revenue deferrals, topping revenue and profit expectations with earnings of 78 cents a share — 7 cents higher than Wall Street analysts had anticipated.

The company’s cloud business continued to drive its results, with revenue in its Intelligent Cloud division, including its Azure cloud computing platform, growing 5 percent to $6.3 billion. The annual run rate in the company’s commercial cloud business reached $9.4 billion.

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Microsoft shares are up more than 1.6 percent in after-hours trading, following the earnings report.

Analysts polled in advance by Thomson Reuters expected the company to post revenue of $25.26 billion for the December quarter, with earnings per share of 71 cents. The company reported revenue of $26.1 billion in the same quarter last year. The lower revenue in the recent quarter (down 2 percent) was caused in part by unfavorable currency conditions. Measured in constant currency, the company said revenue was actually up 3 percent.

Microsoft's Surface Pro 4 and Surface Book.
Microsoft’s Surface Pro 4 and Surface Book.

Revenue from the company’s Surface tablets was up 22 percent, or $248 million, to $1.38 billion, during the peak holiday shopping season. The quarter included the launch of the Surface Pro 4 tablet and the Surface Book, Microsoft’s first laptop. (The increase was 29 percent in constant currency, the company said.)

However, revenue from Windows Phones slipped $1.2 billion, or 53 percent, as the company shifted its focus to a smaller number of flagship devices. Microsoft sold 4.5 million Lumia phones during the period, compared with 10.5 million in the same quarter last year.

Overall gaming revenue increased 5 percent, to more than $4 billion. The company said higher revenue from Xbox Live and video games was offset by lower revenue from Xbox hardware, primarily lower Xbox 360 sales. The company’s sales of video games were up 47 percent, thanks to Minecraft and the launch of Halo 5.

Xbox Live monthly active users rose to 48 million — a new record, according to the company — up 30 percent year-over-year.

Office 365 consumer subscribers reached 20.6 million, and the company said Office 365 revenue grew 70 percent when adjusted for currency fluctuations.

Revenue in the More Personal Computing business, including Windows for PCs, was down 5 percent to $12.7 billion, as the traditional PC market continues to struggle. However, Microsoft said its revenue from sales of Windows to computer makers outperformed the PC market, because of a mix of higher-end devices.

Here is the company’s 10Q filing with more details on its quarterly results.

(Note: Lumia and Gaming numbers corrected since original post; thanks to @PenguinTweet for the catch.)

Microsoft’s conference call with analysts starts at 2:30 p.m. Pacific.

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