Microsoft shares closed at -7% yesterday, which is 7% less than the previous day’s performance. They lost more than 5% of their value after the company announced its first fiscal quarter earnings.
Microsoft bucked expectations with their latest financial reports, but the stock was pressured by investor concerns about low-end cloud revenue.
Microsoft’s cloud business segment generated a total of $20.33 billion in revenue for the quarter. This includes the Azure public cloud as well as Windows Server, SQL Server, and Nuance among others. That’s an improvement of 20% but less than the $20.36 billion analysts expected.
Revenue guidance from Microsoft for the second quarter is estimated to be between $52.35 billion and $53.35 billion, with a midpoint of about $53 billion which equates to growth of 2%. Analysts collectively expected that the company would post revenue of around $56.05 billion.
Satya Nadella, CEO of Microsoft, said at a conference call with analysts that cyclical trends are affecting their consumer business. CFO Amy Hood says weak demand for PCs in September will continue to have an effect on the Windows division’s revenue. She predicts a decline of about 30% by devices makers during the fiscal second quarter.
Goldman Sachs analysts have not been discouraged by the weaker, cyclical segments and have reiterated their buy rating on the company’s stocks. They said that the segments in question should have the potential to rebound and are more likely to provide conservative guidance when faced with a challenging macroeconomic environment.
They expect a rebound in revenue next year.
Having seen the company execute strategically, we’re looking beyond the near-term and remain positive. Whilst we see some headwinds ahead, it’s well positioned to win deals and grow its share of wallet with customers.
Analysts at Morgan Stanley are confident in Microsoft’s growth potential despite its weak cyclical areas and guidance.
The company’s positioning for core secular growth trends is strong, they said
“In summary, the size of this quarter’s downturn in PC shipments has caused us to reduce the FY 23 EPS expectations for Microsoft. That said, our confidence in the long-term story is unchanged and we remain committed investors.”
Barclays analysts said Microsoft’s quarterly outlook was a “negative surprise” for investors, and that macroeconomic challenges are resulting in slower migration from on-premise to cloud-based software.
Even though shares are likely to react negatively in the short term, we’re still confident that revenue and profit will ensure relative outperformance according to the company’s management.
Microsoft’s market value has fallen by about 25% so far this year, while the S&P 500 stock index has dropped 19% over the same period.