Microsoft's Azure revenue growth slows in December quarter, shares fall

(Reuters) - Microsoft Corp on Thursday reported results largely in line with Wall Street's targets, though Azure cloud computing sales grew more slowly in the December quarter than a year earlier.

Earnings per share slightly exceeded expectations, but the software maker's stock fell 2 percent in extended trade after surging 3.3 percent earlier in a broader tech rally.

Azure, Microsoft's flagship cloud product, had revenue growth of 76 percent in the final quarter of 2018, down from a 98 percent surge a year earlier. Azure sales growth was 76 percent in the September quarter as well.

Long known for its Windows software, Microsoft has shifted focus to the cloud where it is duelling with larger rival Amazon.com Inc to control the still fledgling market.

The company is rapidly picking up business from the retail industry in particular, which is aiming to keep pace with the e-commerce business of Amazon. This month alone, Microsoft announced deals with Walgreens Boots Alliance Inc and Kroger Co, on top of a five-year agreement with Walmart Inc it unveiled this summer.

"Our strong commercial cloud results reflect our deep and growing partnerships with leading companies in every industry including retail, financial services, and healthcare," Microsoft Chief Executive Satya Nadella said in a statement.

But Wall Street has grown accustomed to blockbuster earnings beats as companies around the globe ditch their own data centers for the cloud.

"It wasn't a blowout quarter," said analyst Shannon Cross of Cross Research. "That's probably playing a bit into" the stock decline.

Amazon has 32 percent market share, according to research firm Canalys. Microsoft has 18 percent.

Microsoft's total revenue climbed 12.3 percent to $32.47 billion. Wall Street analysts on average had expected revenue of $32.51 billion, according to IBES data from Refinitiv.

Revenue from Microsoft's productivity software unit climbed 13 percent to $10.1 billion, powered by double-digit revenue growth for LinkedIn and Office 365. Wall Street analysts on average had expected revenue of $10.09 billion, according to IBES data from Refinitiv.

Microsoft's personal computing division, home to Windows software and still its largest by revenue, showed revenue growth of 7 percent to $13 billion, while analysts had expected $13.07 billion. The unit also includes Xbox gaming consoles, the Bing online search service and Surface laptops.

Microsoft reported a profit of $8.42 billion or $1.08 per share in the quarter ended Dec. 31, compared with a loss of $6.30 billion or 82 cents per share a year earlier.

Excluding one-time items, Microsoft earned $1.10 per share, edging past analysts' estimates of $1.09 per share.

(Reporting by Vibhuti Sharma in Bengaluru; Editing by Sai Sachin Ravikumar and Richard Chang)