Microsoft (MSFT) Earnings for the Second Quarter of 2023

Microsoft It issued its disappointing revenue forecast for the current quarter in its earnings call on Tuesday, causing a reversal in the share price after shares initially rallied on better-than-expected earnings for the December quarter.

CEO Satya Nadella told analysts on a conference call that the tech company saw a decline in business at the end of 2022 in core Windows and Office areas.

Here’s how the company did:

  • Earnings: $2.32 per share, adjusted, versus $2.29 per share as expected by analysts, according to Refinitiv.
  • he won: $52.75 billion, compared to $52.94 billion as expected by analysts, according to Refinitiv.

Microsoft called for $50.5 billion to $51.5 billion in revenue for the fiscal third quarter, which comes to 3% implied growth, while analysts polled by Refinitiv expected $52.43 billion. The PC market will shrink again, said Amy Hood, the company’s chief financial officer, which will lead to a roughly 17% year-over-year decline in the personal computing business segment featuring Windows.

For the second fiscal quarter, total revenue increased 2% year-over-year in the quarter ended Dec. 31, the slowest rate since 2016, according to the release. Net income fell to $16.43 billion from $18.77 billion in the same quarter last year. The company earned $1.2 billion in fees this quarter related to its decision to cut 10,000 jobs, revise its device lineup and consolidate leases. The charges include $800 million in employee termination costs.

On the call, Hood said business weakened in December, including consumption growth for Azure cloud services. During that month, Hood said, growth in new business was lower than management expected for Microsoft 365 productivity software subscriptions, commercial Windows products, and Enterprise Mobility and Security offerings.

“In our business, we expect the business trends that we saw at the end of December to continue into the third quarter,” she said.

Revenue in Microsoft’s intelligent cloud segment was $21.51 billion, an increase of 18% and slightly above the consensus of $21.44 billion among analysts polled by StreetAccount. Unit includes Azure public cloud, Windows Server, SQL Server, Nuance, and Enterprise Services. Revenue from Azure and other cloud services, which Microsoft does not report in dollars, grew 31%, just above the average estimate of just under 31% from analysts polled by CNBC and StreetAccount. In the prior quarter, the category grew 35%.

Customers are looking to save money by optimizing existing workloads, Nadella said, and are also more cautious about new workloads.

Hood said it expects Azure cloud growth to slow again in the fiscal third quarter. It said in December it was in the 30% average range in constant currency, and sees it drop 4-5 percentage points in the fiscal third quarter. Amazon Shares rose as much as 3% in after-hours trading immediately after Microsoft’s announcement, before turning negative.

The Productivity and Business Operations segment, which contains Microsoft 365 (formerly Office 365), LinkedIn and Dynamics, generated $17 billion in revenue, up 7% and more than StreetAccount’s consensus of $16.79 billion. Nadella said the Teams communications app now has more than 280 million monthly active users.

The personal computing segment comprising Windows, Xbox, Surface and search advertising contributed $14.24 billion, which is a 19% decline in revenue. Sales of Windows licenses to device makers fell 39% year over year, worsening from a 15% decline in the fiscal first quarter. Technology industry researcher Gartner estimated that during the fourth quarter of 2022, the PC business experienced the slowest growth since the company began tracking the market in the mid-1990s.

Hood said its Surface lineup dealt with execution challenges in the quarter, during which the company introduced the Surface Pro 9.

Nadella said Microsoft generated more than $20 billion in security revenue in 2022, up about 33% from 2021, when the growth rate was about 45%.

Microsoft’s report kicks off the big tech earnings season with the Nasdaq emerging from its worst year since 2008 and its first decline in four quarters since the dot-com crash. Along with Microsoft layoffs, Amazon, the alphabet And meta They all announced deep job cuts recently after hiring during the covid pandemic and an extended bull market in tech. Meta is set to report results next Wednesday, followed the next day by Alphabet, Amazon, and Amazon.com an Apple.

Analysts at Raymond James wrote in a note to clients Monday that the decision to cut staff at Microsoft “shows a commitment to margin defense despite the top line shake.” They recommend buying Microsoft shares.

This quarter, the US Federal Trade Commission sued Microsoft to block its pending $69 billion acquisition of the game publisher. Activision Blizzard, while the US Department of Defense awarded Microsoft and three other companies a cloud contract worth a combined $9 billion. “We continue to work with regulators who are reviewing the transaction and are working to close the transaction in fiscal 2023, subject to the required regulatory approvals and other customary closing conditions,” Microsoft said in a statement.

Excluding after-hours movement, Microsoft stock is flat so far this year, while the S&P 500 is up 4%.

Correction: This story has been updated to reflect that Microsoft’s conference call with analysts will begin Tuesday at 5:30 PM ET. The previous version gave an incorrect time.

Watch: In the long term, Microsoft has a tremendous secular growth story, says Oppenheimer Horan

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