The quarterly results presented by Microsoft show that the software giant has three problems. The downside is that Microsoft can do very little to control them.
The company’s revenue, worth $ 1.9 trillion, grew 11% to $ 50 billion, but profit fell 14%. One of the evils it faces is the decline in consumer demand for computers. According to the research institute IDC, worldwide PC shipments in the third quarter fell 15% from the previous year to 74 million. It was already a mature market before the pandemic, but in recent years, sales have soared to unsustainable levels for work and home schooling. Now the strong retreat is affecting the company’s Windows and Office businesses. Since personal computers last three to five years, this throwback has many quarters to go.
The strength of the dollar is another scourge. Microsoft received nearly half of its revenue from outside the United States in the year ended June. A strong dollar means that either the company receives fewer dollars for each overseas sale, or it has to raise prices to compensate for that strength, possibly by deterring buyers. Microsoft says revenue growth would have been 5 percentage points higher in the quarter in constant currency.
Microsoft has a little more control over its cloud business. Amazon Web Services dominates the market, but Microsoft’s Azure service grew 35% last year. It is a business that has travel. Additionally, Azure offers an alternative to Amazon for companies competing with the $ 1.2 trillion behemoth. However, Azure was growing at a rate of 50% a year ago, but today Microsoft is at the mercy of shrinking customer portfolios. Its shares are trading at 24 times estimated earnings for the next 12 months, according to Refinitiv, slightly above the 103-year average. Maybe they deserve a discount.
