Office 365 almost doubled its revenue and increased its consumer subscriber count, while Azure cloud sales were up 140 percent.
Microsoft's net income fell to $5 billion, in its second-quarter ended December 31 from $5.86 billion a year earlier.
Wall Street was looking for second quarter non-GAAP earnings of 71 cents a share on revenue of $25.26 billion.
Microsoft's aggressive campaign to promote Windows 10 has already led to its deployment on more than 200 million devices since its July release. Part of that so-so growth was due to the strong US dollar.
Productivity and Business Processes, which includes Office and Dynamics, made $6.7 billion for the quarter compared to $6.3 billion in the previous quarter.
Revenue for Microsoft's "Intelligent Cloud" segment rose 5 per cent to $US6.34 billion. Microsoft and Nokia have sold a total of 110 million Windows Phones compared to 4.5 billion iOS and Android phones in the same period. Microsoft has previously predicted that its cloud revenue will rise to $20 billion in 2018.
Microsoft says Windows revenue from PC manufacturers is down 5% - beating the overall decline in the shrinking PC market, but still noteworthy.
The star of the show for Microsoft was its cloud business. (MSFT - Get Report) shares are rallying 4.91% to $54.61 Friday morning, continuing its strong momentum from yesterday after the markets closed when the tech giant reported its latest quarterly results.
In terms of devices, Surface sales increased strongly, with revenues up by 29 per cent following the launch of the Surface Pro 4 and Surface Book.
There was also good news for the company's hugely popular games console, the Xbox, with a membership of its online platform Xbox Live rising by 30% to more than 48 million.