For the first time in a year, the company’s quarterly financial results fell short of expectations, a result of a slowdown in its business.
Microsoft’s bet-the-company push toward Web-delivered software slowed at the start of 2016, as the software giant fell short of Wall Street expectations in quarterly earnings for the first time in a year.
The Redmond company had impressed investors recently, as the company’s Web-based Office and developer tools made inroads in cloud-computing businesses pioneered by such Internet natives as Google, Amazon.com and Salesforce.com.
Those gains slowed a bit last quarter, Microsoft said in reporting quarterly earnings Thursday.
Growth in sales of Microsoft’s cloud platform, server software, online Office subscriptions and business-planning tools all slowed during the first three months of 2016, compared with the previous quarter.
Operating income in the company’s “intelligent cloud” segment, which includes Microsoft’s cloud-computing platform and server software business, fell 14 percent from a year earlier.
Overall, Microsoft said it earned an adjusted 62 cents a share during the three months ended in March, shy of the 64 cents a share expected by financial analysts surveyed by Reuters.
Adjusted revenue during the quarter, the third of Microsoft’s 2016 fiscal year, was $22.1 billion, meeting analysts’ expectations.
Including currency effects and deferred revenue related to Windows sales, Microsoft’s profit was 47 cents a share. Similarly unadjusted, net income was $3.8 billion, down 25 percent from a year earlier. Unadjusted revenue was $20.5 billion.
Microsoft executives said Thursday they remained confident in the company’s shift from a maker of out-of-the-box software to the new realm of Web-delivered programs.
The company’s business-focused cloud-computing offerings, primarily the Web-based Office variant, were on pace at the end of the quarter to take in about $10 billion over the course of a full year. At the same point in 2015, that figure was $6.3 billion.
“They’re continuing their transformation to a cloud company,” said Patrick Moorhead, an independent technology analyst. Still, “investors expected Microsoft do better.”
The company’s cloud growth was not enough to offset weakness in its traditional business, he added.
Microsoft’s biggest cash generators — copies of Windows and Office — remained strapped to a weak hardware market. PC shipments during the quarter fell 9.6 percent, according to technology researcher Gartner.
Windows revenue alone fell 7 percent during the quarter, to $3.9 billion.
Amid a sagging PC market and consumers’ increasing reluctance to pay for basic software, some financial analysts have written off Windows as a source of growth for Microsoft.
Chief Executive Satya Nadella has pledged to remedy that, and said Thursday that efforts to boost Windows revenue through app-store sales, search-engine advertising and video gaming were showing “early signs of success.”
Microsoft said at its developer conference last month that 270 million devices were running Windows 10, making it the fastest-growing version of its operating system. The company didn’t update that tally Thursday.
Microsoft’s latest earnings were also stung by global economic weakness that limited sales of software, particularly outside the U.S. and Europe. Markets from China to Latin America, the Middle East and Africa fared worse than Microsoft had expected, executives said.
The company isn’t alone in facing turbulence. Google parent Alphabet saw its stock drop in after-hours trading Thursday, after its own quarterly earnings fell short of analysts’ expectations on losses outside its core search business.
Microsoft’s quarter brought two major financial adjustments.
The company records sales of its Windows operating system over a period of years. Without the resulting deferral, Microsoft’s sales would have been $1.5 billion higher during the quarter. Analysts closely track Microsoft’s deferred revenue.
Also, gains in the U.S. dollar that make Microsoft sales abroad worth less when translated into its home currency sapped an additional $838 million of Microsoft’s revenue.
Microsoft shares fell 5.2 percent, to $52.86 in after-hours trading. They had settled the regular trading day up 0.3 percent at $55.78 — a rise of 34 percent in the past year.