UPDATE 2-Microsoft beats quarterly revenue estimates on cloud strength

(Adds financial details, stock reaction, company background)

By Nivedita Balu and Jane Lanhee Lee

Jan 25 (Reuters) - Microsoft Corp exceeded analysts' expectations for second-quarter revenue on Tuesday, propelled by strong demand for its cloud-based services from more businesses migrating to hybrid work models due to the pandemic.

While revenue beat expectations it failed to turn around the negative market sentiment that has dragged down stocks. Microsoft shares were down about 3% in after-hours trading.

Microsoft has become one of the most valuable companies in the world https://www.reuters.com/technology/apple-set-hand-crown-worlds-most-valuable-company-microsoft-2021-10-29 by betting heavily on corporate software and services, especially its cloud services and the movement to the Web of its Outlook email and calendar software, known as Office 365.

The switch to working and learning from home during the pandemic also attracted more users to Microsoft's office communication software and services such as Teams and Office 365. And demand for cloud services from Microsoft and rivals Amazon.com Inc and Alphabet Inc surged as the pandemic outbreak accelerated a shift online.

Revenue from Microsoft's biggest segment, which offers cloud services and includes Azure, its flagship cloud offering, rose 26%, while the business that houses its Office 365 services increased 19% in the quarter.

Net income rose to $18.77 billion, or $2.48 per share, from $15.46 billion, or $2.03 per share, a year earlier.

The company said revenue rose to $51.73 billion in the three months ended Dec. 31, from $43.08 billion a year earlier.

Analysts on average had expected revenue of $50.88 billion, according to Refinitiv data.

Investors are also focused on Microsoft's proposed $69 billion acquisition of Activision Blizzard Inc, announced on Jan. 18, a huge expansion for its gaming division. It also broadens the company's efforts in the so-called metaverse, or the merging of online and offline worlds, which will have corporate and consumer applications. (Reporting by Nivedita Balu in Bengaluru and Jane Lanhee Lee in Oakland, Calif. Editing by Sriraj Kalluvila and Matthew Lewis)