Microsoft stock drops as tech giant falls just short on revenue expectations, reporting $32.5B

Microsoft CEO Satya Nadella. (GeekWire Photo / Nat Levy)

Microsoft’s hardware team had a huge holiday season and its cloud division continues to grow rapidly, but the company’s stock is dropping after reporting a mixed bag of financial results for the quarter.

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“Our strong commercial cloud results reflect our deep and growing partnerships with leading companies in every industry including retail, financial services, and healthcare,” Microsoft CEO Satya Nadella said in a statement. “We are delivering differentiated value across the cloud and edge as we work to earn customer trust every day.”

Microsoft stock is down about 2.7 percent in after-hours trading Wednesday. The primary factor in the revenue miss was a 5 percent drop in Windows OEM revenue, the money Microsoft brings in from selling Windows to computer makers.

Microsoft splits the company into three main areas in its earnings reports. Here’s how each one did in the quarter ending in December:

Several parts of the business hit revenue milestones in the quarter.

RELATED: Microsoft Surface posts ‘biggest quarter ever’ as new and updated devices pay off

Surface: Revenue from Microsoft’s Surface division, responsible for much of its hardware offerings, was flat for the last few holiday seasons. That certainly changed this time around as Microsoft reported a whopping 39 percent growth in Surface revenue over last year to $1.86 billion.

Microsoft unveiled versions of the most popular Surface tablets and computers as well as the surprising new Surface Headphones at an event in October. Reveal events in the fall, ahead of the holiday shopping season have become a trend among most big companies, and it appears to have paid off for Microsoft this time around.

Gaming: The division that includes everything from Xbox hardware to Xbox Live subscriptions to revenue from games made by Microsoft as well as other studios, hit $4 billion in quarterly revenue for the first time, following annual growth of 8 percent.

The number of Xbox Live users jumped from 57 million a year ago to 64 million in the most recent quarter, one of the biggest increases in years. Xbox hardware revenue declined 19 percent from last year, when the Xbox One X was released, while Xbox software and services revenue increased 31 percent.

LinkedIn: Revenue from the business social network grew 29 percent over last year. Microsoft last quarter stopped reporting LinkedIn revenue and profits/losses as it continued to fold the business social network into its organization more than two years after completing the $26 billion acquisition.

A year ago, LinkedIn brought in $1.31 billion in revenue. A 29 percent increase year-over-year increase would bring revenue in the most recent quarter to just shy of $1.7 billion.

Highlights from the quarter