Microsoft stock falls more than 6% as forecasts fall short and cloud growth slows

Shares of Microsoft Corp. fell more than 6% in after-hours trading on Tuesday, as the company’s cloud computing revenue fell short of expectations and executive forecasts beat expectations by more than $2 billion of dollars.

Microsoft
MSFT,
+1.38%

reported tax profit of $17.56 billion in the first quarter, or $2.35 per share, compared to $2.71 per share in the same quarter a year ago, when Microsoft announced a tax benefit of 44 cents per share. 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.

For the second fiscal quarter, Microsoft Chief Financial Officer Amy Hood forecast revenue of $52.35 billion to $53.35 billion, while analysts on average expected sales of $56.16 billion, according to FactSet. Hood said “Intelligent Cloud” revenue is expected to grow from $21.25 billion to $21.55 billion, while analysts were forecasting an average of $21.82 billion ahead of print; forecasts for other segments missed analyst estimates by a wider margin.

Hood also suggested more cuts could be coming, after Microsoft confirmed earlier this month dismissals of less than 1,000 employees.

“As 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 significantly throughout the year as we focus on growing the productivity of the significant investments we have made over the course of the year. last year.”

Microsoft shares fell between 1% and 2% in after-hours trading after the initial earnings release, then fell more than 6% after Hood provided his guidance on a subsequent conference call. Shares closed 1.4% higher at $250.66.

The cloud computing business has become Microsoft’s biggest and most important business, and cloud growth is raising concerns as the United States 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 fall below estimates.

Opinion: The cloud boom is coming back to Earth, and it could be scary for tech stocks

The Intelligent Cloud segment posted revenue of $20.3 billion in the first quarter, 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 growth of 36.5%, according to FactSet.

This is a marked slowdown from Azure’s 40% growth rate in the previous quarter, as well as the 50% growth posted in the same quarter last year. Microsoft is only reporting percentage growth for its core cloud computing product, even though its main rivals are Amazon.com Inc.
AMZN,
+0.65%

and Alphabet Inc.
GOOGL,
+1.91%

GOOG,
+1.90%

report revenue and profit margin for their cloud computing products.

Microsoft also suffered from the strengthening dollaras well as a sharp drop in sales of personal computers, which increased during the pandemic but are now shows record regression.

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

Microsoft reported PC revenue of $13.3 billion for the quarter, roughly flat from $13.31 billion a year ago and beating analysts’ average estimate of $13.12 billion. dollars, according to FactSet. While PCs have long been what consumers largely know Microsoft for, their importance to company finances has diminished in recent years as cloud computing has grown in importance.

“Historically, Windows was a very important driver of Microsoft’s revenue and, given its high margins, a disproportionate driver of revenue,” 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 quite slowly, diminishing the relative impact of Windows.”

Microsoft’s other revenue segment, Productivity and Business Processes, posted revenue of $16.5 billion, up from $15.04 billion a year ago and above the average estimate analysts’ $16.13 billion, according to FactSet. This segment includes Microsoft’s core cloud software properties such as its Office suite of products – which is officially rebranded as Microsoft 365 – as well as LinkedIn and certain other properties.

Microsoft stock is down 25.5% so far this year, as the S&P 500 index
SPX,
+1.63%

fell 20.3% and the Dow Jones Industrial Average
DJIA,
+1.07%

— which counts Microsoft among its 30 components — fell 13.3%.

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