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Microsoft (MSFT -1.89%) stock underperformed through most of the day on Monday. The software stock was down 2.6% by about 3 p.m. ET, compared to a 2% drop in the S&P 500. That decline added to a tough year for owners of the software giant’s shares, which are down 26% so far in 2022 while the broader market is lower by 16%.
The decline came as investors grew worried about a weakening sales environment in key parts of Microsoft’s business, including video games and productivity software.
Microsoft is reportedly planning to raise prices on premium first-party gaming titles, and that news put investors’ focus on its video game division, which is going through a bit of a growth hangover. While its Xbox gaming systems are in high demand, players aren’t as engaged as they were in the early phases of the pandemic. Executives noted lower levels of playing hours when Microsoft announced fiscal first-quarter results in late October. The Xbox division posted just a 1% sales uptick year over year.
Microsoft will simply be joining many of its peers when it raises game software prices to reflect higher development costs. But the move might still add more pressure to the business segment in 2023.
The good news is that Microsoft is extremely diverse. The cloud services segment was a standout in the company’s last report and helped overall sales expand at a brisk 16% pace after accounting for currency exchange rate shifts. Microsoft is among the most profitable tech companies around, too, having generated $22 billion in operating income in just the most recent quarter.
Investors are likely to see rocky results in several of Microsoft’s software niches, especially the PC division, over the next few quarters. But its overall outlook is bright. Shareholders don’t need to rely solely on management’s word on this point, either. The company raised its dividend by 10% for the current fiscal year, and that move highlights Microsoft’s unusually strong cash position as investors enter a potentially volatile year ahead for most tech stocks.
Demitri Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft. The Motley Fool has a disclosure policy.
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