Microsoft Corp. shares fell more than 6% in after-hours trading Tuesday as the company’s cloud-computing revenue came in lower than expected and executives’ forecast missed expectations by more than $2 billion.
Microsoft’s
MSFT,
reported fiscal first-quarter earnings of $17.56 billion, or $2.35 a share, down from $2.71 a share in the same quarter a year ago, when Microsoft disclosed a 44 cent-per-share tax benefit. Revenue increased to $50.1 billion from $45.32 billion a year ago. Analysts on average were expecting earnings of $2.31 a share on sales of $49.66 billion, according to FactSet.
For the fiscal second quarter, Microsoft Chief Financial Officer Amy Hood guided for revenue of $52.35 billion to $53.35 billion, while analysts on average were expecting sales of $56.16 billion, according to FactSet. Hood said that “Intelligent Cloud” revenue should land from $21.25 billion to $21.55 billion, while analysts on average were projecting $21.82 billion heading into the print; other segment forecasts missed analysts’ estimates by a wider margin.
Hood also suggested that more cuts could be coming, after Microsoft earlier this month confirmed layoffs of fewer than 1,000 employees.
“While we continue to help our customers do more with less, we will do the same internally,” she said. “And you should expect to see our operating-expense growth moderate materially through the year while we focus on growing productivity of the significant head-count investments we’ve made over the last year.”
Microsoft shares fell between 1% and 2% in after-hours trading following the initial release of the results, then slid to declines of more than 6% after Hood provided her forecast in a subsequent conference call. Shares closed with a 1.4% increase at $250.66.
The cloud-computing business has grown into the largest and most important business for Microsoft, and there have been concerns about cloud growth as the U.S. faces its first possible recession since the technology became ubiquitous. Azure’s growth in Tuesday’s report was the slowest Microsoft has reported in the past two years, while Microsoft’s cloud division was the only segment to come in lower than estimates.
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The “Intelligent Cloud” segment reported first-quarter revenue of $20.3 billion, up from $16.96 billion a year ago but slightly lower than the average analyst estimate tracked by FactSet of $20.46 billion. Microsoft said that Azure grew by 35%, while analysts on average were expecting 36.5% growth, according to FactSet.
That is 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 only reports percentage growth for its core cloud-computing product, even as main rivals Amazon.com Inc.
AMZN,
and Alphabet Inc.
GOOGL,
GOOG,
report revenue and profit margin for their cloud-computing products.
Microsoft has also suffered from the strengthening dollar, as well as a sharp downturn in personal-computer sales, which spiked during the pandemic but are now showing 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, roughly flat from $13.31 billion a year before and beating the average analyst estimate of $13.12 billion, according to FactSet. While PCs have long been what consumers largely know Microsoft for, their importance to the company’s financials has declined in recent years as cloud computing has grown in importance.
“Historically, Windows was a very large driver of Microsoft 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 fast while the Windows business has grown quite slower, decreasing the relative impact of Windows.”
Microsoft’s other revenue segment, “Productivity and Business Processes,” reported revenue of $16.5 billion, up from $15.04 billion a year ago and higher 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 is being officially renamed Microsoft 365 — as well as LinkedIn and some other properties.
Microsoft stock has declined 25.5% so far this year, as the S&P 500 index
SPX,
has dropped 20.3% and the Dow Jones Industrial Average
DJIA,
— which counts Microsoft as one of its 30 components — has declined 13.3%.
