Microsoft’s stock slipped as Azure growth slowed and cloud sales missed forecasts

As the company’s cloud-computing revenue came in lower than expected and its core cloud product, Azure, grew at a slower-than-expected rate, Microsoft Corp.

Microsoft’s MSFT,
+1.38%
The cloud-computing business has grown to be the largest and most important business for the company, especially for investors looking for Azure’s high profitability and strong growth. There are concerns about cloud growth as the U.S. faces its first potential recession since the technology became ubiquitous, and Azure’s growth in Tuesday’s report was the slowest growth reported by Microsoft in the past two years, while only Microsoft’s cloud division came in. Lower than estimates.

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

Comment: The cloud boom is coming back down to earth, and that could be scary for tech stocks

This is a significant slowdown from Azure’s 40% growth rate in the previous quarter and the 50% growth it showed in the same quarter last year. Major competitors Amazon.com Inc. Like AMZN, Microsoft only reports percentage growth for its core cloud-computing product.
+0.65%
and Alphabet Inc. GOOGLE,
+1.91%
GOOG,
+1.90%
Report revenue and profit margins for their cloud-computing products.

Overall, Microsoft MSFT,
+1.38%
Fiscal first-quarter revenue was $17.56 billion, or $2.35 a share, down from $2.71 a share in the same quarter a year ago. 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.

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Microsoft shares fell 1% to 2% in after-hours trading after the results were released, after rising 1.4% to close at $250.66. Microsoft stock tends to be very strong in after-hours trading following earnings reports after executives shared their forecast for the current quarter on a conference call starting at 5:30 PM Eastern.

Microsoft is beginning to show some of the effects of the weak macroeconomic climate, It confirms that fewer than 1,000 workers were laid off earlier this month. Microsoft is affected A strengthening dollarAs well as a sharp decline in personal-computer sales, it increased during epidemics But there are Now the record shows regression.

Further: The pandemic PC boom is over, but its legacy lives on

According to FactSet, Microsoft reported PC revenue of $13.3 billion, flat from $13.31 billion a year ago and beating the average estimate of $13.12 billion. While PCs have long been familiar to consumers Microsoft, their importance to the company’s finances has diminished in recent years as cloud computing has grown in importance.

“Historically, Windows has been Microsoft’s largest driver of revenue and its strong margins, a proportional driver of revenues,” Bernstein analysts wrote in a preview of the report, while maintaining an “overweight” rating. “Over time other businesses, particularly Microsoft’s business cloud, grew faster, while the Windows business grew more slowly, reducing the relative impact of Windows.”

Microsoft’s other revenue segment, “Manufacturing and Business Processes,” posted revenue of $16.5 billion, up from $15.04 billion a year earlier and above the average analyst estimate of $16.13 billion, according to FactSet. That segment includes Microsoft’s main cloud-software properties, its Office suite products — officially renamed Microsoft 365 — as well as LinkedIn and some other properties.

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Microsoft’s second-quarter guidance will be important for investors if the tech giant can weather any economic downturn and show strong growth in the cloud. Analysts on average expect second-quarter overall revenue of $56.16 billion and “Intelligent Cloud” sales of $21.82 billion, according to FactSet, with some writing that they wanted to hear the full picture from Microsoft executives. year.

“Our hope is that full-year fiscal 2023 management will provide a little more color in fiscal 2023 beyond double-digit revenue growth and operating margins roughly flat commentary from last quarter,” MoffetNathanson analysts, with a “market perform” rating and $282 price target on the stock, wrote in their outlook. . “We expect headcount-related revenue streams like Office to see headwinds in the coming quarters, but volume businesses like Azure, tied to data, will remain resilient.”

Microsoft shares are down 25.5% so far this year, while the S&P 500 index SPX,
+1.63%
Down 20.3% and the Dow Jones Industrial Average DJIA,
+1.07%
— which Microsoft counts as one of its 30 components — is down 13.3%.

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