Microsoft shares fall as Azure growth slows and cloud sales fall short of projections

Shares of Microsoft Corp. fell in after-hours trading on Tuesday despite a surge in earnings, as the company’s cloud computing revenue was weaker than expected and its main cloud product, Azure , grew at a slower pace than projections.

by microsoft

The cloud computing business has become the biggest and most important business for the company, especially for investors who like Azure’s high margins and strong growth. There have been concerns about cloud growth as the US grapples with its first possible recession since the technology became ubiquitous, and Azure’s growth in Tuesday’s report was the slowest Microsoft has reported in years. the past two years, while Microsoft’s cloud division was the only segment to enter. lower than estimates.

The “Intelligent Cloud” segment reported first-quarter revenue of $20.3 billion, up from $16.96 billion a year ago, but slightly below the average analyst estimate tracked by FactSet of $20.46 billion. Microsoft said Azure grew 35%, while analysts on average expected 36.5% growth, according to FactSet.

Opinion: The cloud boom is coming back to Earth, and that could spook tech stocks

That’s a marked slowdown from Azure’s 40% growth rate in the previous quarter, as well as the 50% growth shown in the same quarter last year. Microsoft reports only percentage growth for its core cloud computing product, even as its main rivals, Inc.

and Alphabet Inc.


report the revenue and profit margin of its cloud computing products.

Generally, Microsoft

reported fiscal first-quarter earnings of $17.56 billion, or $2.35 per share, down from $2.71 per share in the same quarter a year ago, when Microsoft disclosed a tax profit of 44 cents per share. action. Revenue rose to $50.1 billion from $45.32 billion a year ago. Analysts on average had expected earnings of $2.31 per share on sales of $49.66 billion, according to FactSet.

Shares of Microsoft fell between 1% and 2% in after-hours trading after the results were released, after closing up 1.4% at $250.66. Microsoft stocks tend to react more strongly in after-hours trading after executives share their outlook for the current quarter on their conference call, which is scheduled to start at 5:30 pm ET.

Microsoft has started to show some effects of a weakening macroeconomic climate, confirming layoffs of fewer than 1,000 employees earlier this month. Microsoft has suffered the dollar strengthenedas well as a sharp drop in sales of personal computers, which skyrocketed during the pandemic But they are now shows record regression.

For more: The pandemic PC boom is over, but its legacy will live on

Microsoft reported PC revenue of $13.3 billion for the quarter, about the same as $13.31 billion a year earlier and topping analysts’ average estimate of $13.12 billion, according to FactSet. While PCs have long been the reason Microsoft is largely known to consumers, their importance to the company’s finances has diminished in recent years as cloud computing has grown in importance.

“Historically, Windows was a huge driver of Microsoft’s revenue and, given its strong margins, a disproportionate driver of earnings,” Bernstein analysts wrote in a preview of the report, while maintaining an “overweight” rating. “Over time, other businesses, especially Microsoft’s commercial cloud, have grown rapidly, while the Windows business has grown considerably more slowly, diminishing the relative impact of Windows.”

Microsoft’s other revenue segment, “Productivity and Business Processes,” reported revenue of $16.5 billion, down from $15.04 billion a year ago and more than the average analyst estimate of $16.13 billion, according to FactSet. That segment includes Microsoft’s core cloud software properties, such as its Office suite of products, which will be officially rebranded as Microsoft 365, as well as LinkedIn and a few other properties.

Microsoft’s second-quarter guidance will be crucial for investors hoping the tech giant can weather whatever economic shock comes its way and show stronger growth in the cloud. Analysts on average had expected second-quarter overall revenue of $56.16 billion and “Intelligent Cloud” sales of $21.82 billion before press, according to FactSet, while some wrote they’d like to hear more from analysts. Microsoft executives about the whole picture. year.

“Our hope is that management will provide a little more color throughout fiscal 2023 beyond double-digit revenue growth and operating margins are virtually flat comments from last quarter,” analysts at MoffetNathanson, who have a rating of “market return” and $282 price target on the stock, he wrote in his preview. “We would expect headcount-related revenue streams like Office to see increasing headwinds in the coming quarters, but volume companies like Azure, which is linked to data, are more resilient.”

Microsoft shares are down 25.5% so far this year, according to the S&P 500 index.

has fallen 20.3% and the Dow Jones Industrial Average

– which counts Microsoft as one of its 30 components – is down 13.3%.

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