Microsoft (MSFT) Q4 2022 results

Microsoft Shares rose 5% in extended trading on Tuesday after the software maker issued an upbeat revenue forecast for the year ahead, despite reporting quarterly results that fell short of Wall Street consensus.

Here’s how the company did it:

  • Earnings: $2.23 per share, adjusted, versus $2.29 per share as expected by analysts, according to Refinitiv.
  • Revenue: $51.87 billion, versus $52.44 billion as forecast by analysts, according to Refinitiv.

Microsoft posted the weakest revenue growth since 2020, at 12% year-over-year in the quarter, which ended June 30, according to a statement. The company’s earnings per share fell short of consensus for the first time since 2016, with net profit up 2% to $16.74 billion.

As for the forecast, Microsoft called for revenue of $49.25 billion to $50.25 billion for the fiscal first quarter. The middle of the range, at $49.75 billion, implies revenue growth of around 10%, reflecting deteriorating PC sales and slowing cloud infrastructure growth. Analysts polled by Refinitiv had expected more, at $51.49 billion. The company’s implied gross margin, at 69.85%, was above the consensus of 69.30% among analysts polled by StreetAccount.

And for the new fiscal year 2023, the company reiterated its forecast from three months ago, despite the economic situation.

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“We continue to expect double-digit revenue and operating income growth in constant currency and in U.S. dollars,” Microsoft chief financial officer Amy Hood said in a conference call with Microsoft. analysts. She said Microsoft would extend the useful life of server and network equipment from four years to six years. The company made a similar move in 2020.

During the fourth fiscal quarter, the biggest challenge stemmed from the deterioration in exchange rates. Microsoft said that reduced revenue by $595 million and earnings by 4 cents per share. In June, Microsoft reduced its quarterly revenue and revenue forecast for revenue and revenue only due to rate fluctuations. Revenues and revenue for the quarter are at the low end of the ranges put forward by Microsoft in June.

Microsoft’s Intelligent Cloud segment, which includes Azure public cloud for application hosting, SQL Server, Windows Server and enterprise services, generated $20.91 billion in revenue. That was up 20% and below the $21.10 billion consensus among analysts polled by StreetAccount.

The company said revenue from Azure and other cloud services increased 40% from 46% in the previous quarter. Analysts polled by CNBC had expected 43.1%, while StreetAccount’s consensus estimate was 43.4%. Microsoft does not disclose Azure revenue in dollars. Azure’s result was one percentage point lower than management had expected due to slower growth in consumption of services such as computing and storage resources, Hood said.

Still, CEO Satya Nadella bragged that Microsoft struck lucrative Azure deals during the conference call.

“We’re seeing larger, longer-term commitments and a record number of deals over $100 million and over $1 billion this quarter,” Nadella said.

Microsoft’s Productivity and Business Processes segment, including Office productivity software, Dynamics and LinkedIn, recorded revenue of $16.60 billion. That’s up almost 13% and slightly less than the StreetAccount consensus of $16.66 billion. E5 premium tier represents 12% of all commercial Office 365 subscriptions, up from 8% previously one year ago. But she said there was “some moderation in the volume of new transactions outside of E5, particularly in the small and medium business segment.”

The More Personal Computing segment, comprising Windows operating system, Xbox video game consoles, Bing search engine and Surface devices, generated $14.36 billion in revenue for the quarter. Revenue was up 2% year-over-year and barely below StreetAccount’s consensus of $14.65 billion. Microsoft said search and news advertising, excluding traffic acquisition costs, grew 18% on higher search volume and revenue per search. Still, a contraction in ad spending resulted in a $100 million reduction in revenue from the search and news advertising categories and LinkedIn.

Sales of Windows licenses to device manufacturers fell 2% in the quarter. Gartner Technology Industry Researcher said earlier this month that logistical disruptions in the quarter contributed to a 12.6% drop in quarterly PC shipments, a key data for this metric. The company said factory shutdowns in China in April and May and a deteriorating computer market in June cut device makers’ Windows revenue by $300 million.

The hurdles related to FX ad spend and computer sales were relatively well understood among investors ahead of the earnings report, said Peter Choi, senior research analyst at Vontobel Asset Management, which held 1.11 billion worth of Microsoft shares at the end of March, according to a deposit.

“The major franchises that represent what people are most excited about owning Microsoft – those are the most resilient areas, and they continue to shine through maybe a slight deceleration, but those parts of the business were certainly more reassuring “, said Choi. .

Microsoft saw $126 million in operating expenses related to its decision to stop selling products and services in Russia after that country invaded Ukraine.

During the quarter, Nadella announcement that employees will get pay raises, and that the company introduced services to help customers deal with security incidents.

Excluding the after-hours move, Microsoft stock has fallen 25% so far this year, compared to a roughly 18% drop in the S&P 500 index of U.S. stocks.

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