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Microsoft (MSFT) earnings Q4 2022

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Microsoft shares rose 5% in prolonged trading on Tuesday after the software maker issued a rosy income forecast for the 12 months ahead, despite issuing quarterly results that failed to succeed in Wall Street consensus.

Here’s how the corporate did:

  • Earnings: $2.23 per share, adjusted, vs. $2.29 per share as expected by analysts, in accordance with Refinitiv.
  • Revenue: $51.87 billion, vs. $52.44 billion as expected by analysts, in accordance with Refinitiv.

Microsoft turned within the slowest revenue growth since 2020, at 12% 12 months over 12 months within the quarter, which ended on June 30, in accordance with a statement. The corporate’s earnings per share fell wanting consensus for the primary time since 2016, with net income rising 2% to $16.74 billion.

With respect to guidance, Microsoft called for $49.25 billion to $50.25 billion in fiscal first-quarter revenue. The center of the range, at $49.75 billion, implies about 10% revenue growth, reflecting worsening PC sales and slower cloud infrastructure growth. Analysts polled by Refinitiv had expected more, at $51.49 billion. The corporate’s implied gross margin, at 69.85%, was wider than the 69.30% consensus amongst analysts polled by StreetAccount.

And for the brand new 2023 fiscal 12 months, the corporate reiterated its forecast from three months ago, despite the economic climate.

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“We proceed to expect double digit revenue and operating income growth in constant currency and U.S. dollars,” Amy Hood, Microsoft’s finance chief, said on a conference call with analysts. She said Microsoft would lengthen the useful lifetime of server and networking equipment to 6 years from 4 years. The corporate made an identical move in 2020.

Within the fiscal fourth quarter, the largest challenge stemmed from worsening foreign-exchange rates. Microsoft said that reduced revenue by $595 million and earnings by 4 cents per share. In June, Microsoft reduced its quarterly income and revenue guidance guidance for income and revenue simply because of rate fluctuations. Revenue and income for the quarter got here in on the low end of the ranges that Microsoft had recommend in June.

Microsoft’s Intelligent Cloud segment, which incorporates the 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 consensus of $21.10 billion amongst analysts polled by StreetAccount.

The corporate said revenue from Azure and other cloud services grew by 40%, compared with 46% within the prior quarter. Analysts surveyed by CNBC had expected 43.1%, while the consensus estimate from StreetAccount was 43.4%. Microsoft doesn’t disclose Azure revenue in dollars. The Azure result was one percentage point lower than management had expected due to slower growth in consumption, from services reminiscent of computing and storage resources, Hood said.

Still, CEO Satya Nadella boasted about Microsoft scoring lucrative Azure deals through the conference call.

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

Microsoft’s Productivity and Business Processes segment including Office productivity software, Dynamics and LinkedIn posted $16.60 billion in revenue. That was up nearly 13% and barely lower than the StreetAccount consensus of $16.66 billion. The premium E5 tier accounts for 12% of all business Office 365 subscriptions, up from 8% one 12 months ago. But she said there was “some moderation in latest deal volume outside of E5 particularly within the small and medium business customer segment.”

The More Personal Computing segment featuring the Windows operating system, Xbox video-game consoles, the Bing search engine and Surface devices delivered $14.36 billion in revenue for the quarter. Revenue was up 2% 12 months over 12 months and barely lower than the $14.65 billion StreetAccount consensus. Microsoft said search and news promoting, excluding traffic-acquisition costs, rose 18% due to stronger search volume and revenue per search. Still, a contraction in promoting spending resulted in a $100 million cut to revenue for the search and news promoting and LinkedIn categories.

Sales of Windows licenses to device makers fell by 2% within the quarter. Technology industry researcher Gartner said earlier this month that logistical disruptions within the quarter had contributed to a 12.6% decrease in quarterly PC shipments, a key input for that metric. The corporate said factory shutdowns in China in April and May and a worsening computer market in June reduced Windows revenue from device makers by $300 million.

Hurdles from exchange rates promoting spending and computer sales were relatively well understood amongst investors heading into the earnings report, said Peter Choi, a senior research analyst at Vontobel Asset Management, which held $1.11 billion in Microsoft stock at the top of March, in accordance with a filing.

“The core franchises that represent what individuals are most enthusiastic about for owning Microsoft — those were the more resilient areas, and so they proceed to shine through possibly a touch of deceleration, but those parts of the business were actually more reassuring,” Choi said.

Microsoft saw $126 million in operating expenses tied to its decision to stop selling services and products in Russia following the country’s invasion of Ukraine.

Throughout the quarter, Nadella announced that employees will get pay increases, and the corporate introduced services to assist customers take care of security incidents.

Excluding the after-hours move, Microsoft stock has tumbled 25% thus far this 12 months, compared with a roughly 18% decline within the S&P 500 index of U.S. stocks.

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