Microsoft Q1 earnings top expectations with big cloud, Surface, Xbox growth

Microsoft kicked off the first quarter of its 2021 fiscal year with a bang.

What you need to know

• Microsoft released its Q1 earnings for its 2021 fiscal year today.
• The company reported $37.2 billion in revenue on earnings of.
• That's up 12 percent over the same period last year.
• The growth was largely driven by big increases in the cloud, along with surges in Surface and Xbox services.

Microsoft reported its earnings for the first quarter of its 2021 fiscal year, revealing $37.2 billion in revenue. That's up 12 percent from the same period a year ago. It also beats Wall Street expectations, which sat at around $35.7 billion ahead of today's report.

Here are the highlights from the report:

• Revenue was $37.2 billion and increased 12%
• Operating income was $15.9 billion and increased 25%
• Net income was $13.9 billion and increased 30%
• Diluted earnings per share was $1.82 and increased 32%

The cloud continues to be a significant driver of Microsoft's growth, according to Microsoft executive vice president and chief financial officer Amy Hood. "Demand for our cloud offerings drove a strong start to the fiscal year with our commercial cloud revenue generating $15.2 billion, up 31% year over year," Hood said. "We continue to invest against the significant opportunity ahead of us to drive long-term growth."

While Microsoft is still behind AWS in the cloud space, it chipped away at Amazon's lead in 2019, adding two percentage points to its market share (17.9 percent), according to Gartner. It's an area that has delivered large gains for Microsoft in recent years and is primed to continue to do so in the future if Microsoft can stay competitive.

The More Personal Computing category, where Microsoft places its Windows, Xbox, Surface, and Search revenue, grew six percent to $11.8 billion. That was dragged down slightly by sagging Windows OEM revenue, which dipped by five percent. However, Windows commercial products and cloud services jumped by 13 percent.

Seeing even greater percentage gains were Microsoft's Xbox and Surface segments. Xbox content and services revenue jumped by 30 percent during the quarter, while Surface revenue increased by 37 percent.

Surface revenue was likely driven by Microsoft's release of the new Surface Laptop Go and the Surface Duo. Xbox, meanwhile, has seen a lot of interest in Xbox Game Pass Ultimate, which has kept adding to its catalogue while giving players access to Xbox Cloud Gaming on the go through Android devices. It's likely we'll see this category expand further as we ramp up to the November 10 launch of the Xbox Series X and Xbox Series S.

We'll get more details on this quarter's results during Microsoft's earnings call for investors. You can listen in live starting at 5:30 p.m. ET / 2:30 p.m. PT at Microsoft's investor relations site.