Microsoft (MSFT-USA) Tuesday (26) after the market announced that cloud revenue growth in the first quarter of the fiscal year was worse than market expectations and the second quarter revenue forecast was weak, driving the share price down by almost 7% after the market.
Recently confirmed, Microsoft closed 1.38% higher on Tuesday and fell $ 17, or 6.78%, to $ 233.66 per share after closing time.
Key figures of the financial forecast for the second quarter FY2023 versus analysts’ expectations
- Revenue: $ 52.35 billion to $ 53.35 billion (which means an average annual increase of 2%) compared to $ 56.05 billion (consensus in a Refinitiv survey)
- Implied gross margin: 69.2% vs.69.8% (StreetAccount survey consensus)
Key figures for fiscal first quarter (ending September 30)
- Adjusted EPS: $ 2.35 vs $ 2.30 (Consensus Refinitiv Survey)
- Net income: decreased 14% yoy to $ 17.56 billion.
- Revenue: 11% year-over-year increase to $ 50.12 billion from $ 49.61 billion (Refinitiv consensus estimate)
Cyclical trends are impacting Microsoft’s consumer business, CEO Satya Nadella said in an earnings call.
Although Microsoft received $ 3.3 billion in tax incentives, its first-quarter net profit fell 14% year-on-year to $ 17.56 billion. But Microsoft extended the lifespan of its servers and networking equipment from four to six years, adding $ 859 million to first-quarter net income.
Fourth quarter revenue trend by sector
Business Unit Intelligent Cloud (Intelligent Cloud)
This division includes Azure Public Cloud, Windows Server, SQL Server, Visual Studio, GitHub and Enterprise Consulting Services)
- Revenue: 20% year-over-year increase to $ 20.33 billion, slightly below expectations. (StreetAccount estimated at $ 20.36 billion)
Azure revenue grew 35% in the quarter, down from a 40% growth rate in the previous quarter and below previous analyst forecasts of 36.4% growth, while the consensus estimate of StreetAccount for Azure growth was 36.9%.
Amy Hood, Microsoft’s chief financial officer, said Azure consumption growth continued to slow and that rising energy costs in the first quarter hurt Azure’s gross margin.
For the second fiscal quarter, Hood said Azure constant currency revenue growth is likely to be down about 5% from the first quarter. It has not provided dollar-denominated growth rates, and Microsoft does not disclose Azure-specific revenue.
Productivity and business processes
The division includes companies such as Microsoft 365 productivity software subscriptions, LinkedIn and Dynamics. (Microsoft is renaming the Office 365 suite)
- Revenue: up 9% year-over-year to $ 16.47 billion, exceeding expectations. (StreetAccount consensus estimate is $ 16.13 billion)
Chief Financial Officer Amy Hood said a large portion of Microsoft 365 subscriptions in fiscal first quarter came from E5, the most expensive package.
More personal computers
This division contains Windows operating systems, Surface devices, Xbox video game consoles, and Bing search engine ads.
- Revenue: $ 13.33 billion, better than expected. (StreetAccount’s consensus estimate is $ 13.12 billion.)
Microsoft’s Windows licensing revenue in the first quarter of device manufacturers was down 15% from the previous year, the sharpest annual decline since 2015 and worse than the single-digit decline Hood predicted in July. Microsoft said the PC market continued to deteriorate during the quarter.
This finding is not unexpected: technology research firm Gartner estimated earlier this month that PC shipments in the quarter were down 19.5% year-on-year. Chip maker AMD also reported preliminary quarterly results earlier this month that fell short of expectations, largely due to “a weaker-than-expected PC market and a major inventory adjustment along the supply chain. of PCs “.
Hood said on Tuesday that September saw markedly weaker demand for PCs that will continue to weigh on its consumer business, with device makers’ Windows licensing revenues down more than 30% in fiscal second quarter.
For the first time ever, Microsoft’s cloud metrics (including Azure, Office 365 commercial subscriptions, LinkedIn Business, and Dynamics 365) accounted for more than 50% of the company’s total revenue.
Development in the first quarter
Microsoft has begun rolling out its first annual update to its Windows 11 operating system.
Microsoft announced plans to slow hiring and said layoffs were less than 1%.
Microsoft launches Viva Engage, the portal to the Teams office communications app.
“In this environment, we strive to help our clients do more with less, while investing in long-term growth areas and managing our cost structure in a disciplined manner,” Nadella said in a statement.
Hood said operating expense growth is expected to slow significantly in fiscal year 2023 as the company focuses on improving employee productivity.
Microsoft has slightly changed the way it reported first quarter revenue. Revenues from HoloLens augmented reality (AR) devices are recognized in the “More Personal Computing segment” rather than the “Smart Cloud segment”. In response to this change, Microsoft has adjusted its forecast for these areas by approximately $ 100 million.
Excluding after-hour volatility, Microsoft is down about 26% this year. S&P 500 The index fell 19%.
