Office 365 now has 20.6 million subscribers.
Wall Street was looking for second quarter non-GAAP earnings of 71 cents a share on revenue of $25.26 billion.
As with Apple and other USA companies operating internationally, "currency headwinds" took a toll on Microsoft's earnings.
The better than expected results were driven mainly by Microsoft's cloud services division, which reported a 5% year-on-year revenue hike to $6.3bn, accounting for more than a quarter of the company's total revenue. Search advertising revenue overall grew 21 percent on a constant currency basis.
"The thing that we notice...is that anyone who has moved to the cloud, there is a real opportunity to move to multiple workloads over time", Nadella said of the growth of the Azure cloud computing and development platform.
Amazon and its fast-growing Amazon Web Services business is a formidable opponent in cloud computing, though.
Mr. Nadella said companies were using its cloud services to drive transformation.
Revenue in the business that includes Windows fell 5 per cent to US$12.7 billion.
"It was a strong holiday season for Microsoft, highlighted by Surface and Xbox", Kevin Turner, COO at Microsoft, said in the call.
Intelligent Cloud revenue grew to $6.3 billion, up 5% in GAAP terms or 11% in constant currency.
Revenues at Microsoft fell by one-tenth in the last quarter of 2015, while profits fell by 15 per cent, both largely as a result of falling PC sales.
In the fiscal second quarter, revenue for Microsoft's "Intelligent Cloud" segment rose 5% to $6.34 billion.
Microsoft will endeavour to arrest the decline in the current quarter with the launch its new high-end Windows Phone devices, the Lumia 950 and Lumia 950 XL, in the current quarter.
Currently, there are 200 million active users of Windows 10, but the company is aiming to have 1 billion users by 2019. The weak PC market led to a 5 percent fall in Windows OEM revenue at constant exchange rates, and revenue from mobile phones fell 49 percent.
Some of Microsoft's hardware businesses also performed well during the final three months of the year, including the Surface line of convertible tablets, which grew revenue 29% year-on-year, and the XBox gaming consoles (although Microsoft does not release XBox sales figures).