Microsoft experienced a decline in its shares, dropping by as much as 4% during after-hours trading on Tuesday. The reason behind this was the company’s quarterly revenue guidance, which failed to meet analysts’ expectations. Here are the key details:
– Earnings: Microsoft reported earnings of $2.69 per share, surpassing the expected figure of $2.55 per share according to Refinitiv.
– Revenue: The company’s revenue reached $56.19 billion, slightly exceeding the projected estimate of $55.47 billion by Refinitiv.
During a conference call with analysts, Amy Hood, Microsoft’s finance chief, provided guidance for the fiscal first-quarter revenue, estimating it to fall between $53.8 billion and $54.8 billion. The midpoint of this range, which is $54.30 billion, implies an 8% growth rate. However, it falls short of the analysts’ consensus of $54.94 billion.
The Windows operating system segment was below expectations, as Hood projected a revenue range of $12.5 billion to $12.9 billion. Analysts had been anticipating $13.22 billion.
In terms of year-over-year growth, Microsoft experienced an 8% increase in revenue for its fiscal fourth quarter, which concluded on June 30. This marks the third consecutive quarter where growth has been below 10%, a trend not observed since 2017. Net income rose to $20.08 billion from $16.74 billion in the same quarter last year.
The Intelligent Cloud segment of Microsoft contributed $23.99 billion in revenue, reflecting a 15% growth rate and surpassing the consensus estimate of $23.79 billion. This segment encompasses various elements such as the Azure public cloud, SQL Server, Windows Server, Visual Studio, Nuance, GitHub, and enterprise services.
Azure, the company’s cloud computing platform, experienced a 26% growth in revenue during the quarter. This growth rate outpaced the 27% in the previous quarter and the 40% from the year-ago quarter. Analysts had predicted a 25% growth rate for Azure. However, Microsoft CEO Satya Nadella announced that “the Microsoft Cloud surpassed $110 billion in annual revenue, up 27% in constant currency, with Azure accounting for more than 50% of the total for the first time.”
It is worth noting that Google’s parent company, Alphabet, also reported growth in its cloud products, with a revenue increase of 28%.
Many organizations using cloud services from Microsoft, Amazon, and Google have been adjusting their existing workloads to reduce costs due to concerns about the worsening economy. Hood acknowledged the expected trend of optimization and new workload adjustments in Azure.
Microsoft’s Productivity and Business Processes segment, consisting of Office productivity software, LinkedIn, and Dynamics, achieved $18.29 billion in revenue, surpassing the consensus estimate of $18.06 billion.
The More Personal Computing business, which includes Windows, devices, gaming, and search advertising, generated $13.91 billion in revenue. Although this figure indicates a decline of approximately 4%, it still exceeded the consensus estimate of $13.58 billion.
Sales of Windows licenses to device manufacturers decreased by 12%, a better result than management had anticipated. The onset of the Covid pandemic led to increased demand for PCs by both consumers and companies, making year-over-year comparisons challenging. According to technology industry researcher Gartner, PC shipments, including Apple’s MacBooks, fell by approximately 17% during the quarter.
Microsoft and Alphabet are the first among the major tech companies to report their earnings for this season. Investors are particularly interested in cost-cutting measures implemented earlier in the year and the impact of artificial intelligence investments on profitability.
Investors are also eagerly awaiting updates on Microsoft’s plan to acquire Activision Blizzard for nearly $69 billion. An appeals court recently rejected the Federal Trade Commission’s motion to halt the transaction. Activision shares have surged to over $92.50, near the agreed-upon price of $95, signaling optimism that the deal will proceed as planned.
Operating expenses for Microsoft rose by approximately 2% in the quarter, partly due to a fine imposed by Ireland’s Data Protection Commission after an investigation into whether Microsoft’s LinkedIn unit violated the European Union’s General Data Protection Regulation.
Microsoft has expanded its alliance with OpenAI, leveraging the growing interest in artificial intelligence. The company has introduced a chatbot powered by OpenAI language models to help employees analyze their employers’ data. Microsoft’s Azure OpenAI Service, which provides access to language models and other developer tools, has seen a significant increase in customers, reaching over 11,000 from over 4,500 in May.
Looking ahead, Microsoft expects the revenue impact from AI services to be greater in the second half of the 2024 fiscal year compared to the first half. The company’s Azure growth in the fiscal first quarter is projected to be around 25% to 26%, with AI services contributing 2 percentage points to this growth.
Despite the after-hours drop, Microsoft shares have seen a year-to-date increase of 46%, outperforming the 19% increase in the S&P 500.
Microsoft executives will discuss the results and provide further guidance during a conference call with analysts.
Please note that this is breaking news, and updates may follow.
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