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Microsoft Stock Slumps As Azure Growth Clouds Q2 Earnings Beat

Microsoft topped most forecasts for its second quarter earnings, but noted a modest slowdown in revenue growth from its key Azure cloud unit.

Updated at 4:52 pm EST

Microsoft Corp  (MSFT) - Get Microsoft Corporation Report posted stronger-than-expected fourth quarter earnings Tuesday but noted a modestly slowing growth rate in its key cloud unit, sending shares lower in extend-hours trading.

Microsoft said revenues for Azure, its flagship cloud division, rose 46% from last year, helping overall group revenues rise 20% to a record $51.7 billion for the three months ending in December, Microsoft's fiscal second quarter. That topped analysts' estimates of a $50.89 billion tally, but it was notable that Azure revenues grew at a 48% clip in the prior quarter.

Still, Microsoft's bottom line rose 7.2% to $18.8 billion, as adjusted earnings rose 22.1% from last year to $2.48 per share, comfortably topping the Street consensus forecast of $2.31 per share.

In terms of reporting segments, Productivity and business processes division revenues rose 19% to $15.9 billion, Microsoft said, while Intelligent Cloud revenues were up 26% to $18.3 billion. More Personal Computing revenues rose 15% to $17.4 billion.

 “Digital technology is the most malleable resource at the world’s disposal to overcome constraints and reimagine everyday work and life,” said CEO Satya Nadella. “As tech as a percentage of global GDP continues to increase, we are innovating and investing across diverse and growing markets, with a common underlying technology stack and an operating model that reinforces a common strategy, culture, and sense of purpose.”

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Microsoft shares were marked 5.3% lower in extended hours trading immediately following the earnings release to indicate a Wednesday opening bell price of $273.25 each.

"In this jittery market we will see every tech print initially viewed as glass half empty, but ultimately this remains a core cloud name to own and we believe is in oversold territory," said Wedbush analyst Dan Ives, who carries an "outperform" rating on the stock with a $375 price target. "

"It all comes down to guidance on the call, this will be the focus for the Street to gauge broader enterprise/cloud spending into the rest of 2022 in this white knuckle backdrop," he added.

Gaming revenues, Microsoft said, were up 8% while Xbox content and services revenue increased 10%. 

Microsoft said earlier this month that it will pay $95 a share, or just under $69 billion for Call of Duty and World of Warcraft maker Activision Blizzard  (ATVI) - Get Activision Blizzard, Inc. Report in both the tech giant and the video game maker's biggest-ever takeover deal.

Antitrust concerns, however, could complicate Microsoft's push into the 3 billion player-strong market as companies rush to establish and monetize their subscriber bases as they move into the so-called metaverse, a hyper-realized version of the internet pioneered by Facebook parent Meta Platforms  (FB) - Get Meta Platforms Inc. Class A Report.

Video game companies generated around $180 billion in revenues last year, an industry report published in October noted, a modest increase from 2020 levels that was lead by around $90 billion in sales from mobile gaming options.