Microsoft shares fell 1% in extended trading on Tuesday after the software maker reported fiscal fourth-quarter results that failed to meet Wall Street consensus.
Here’s how the company did it:
- Earnings: $2.23 per share, adjusted, versus the $2.29 per share expected by analysts, according to Refinitiv.
- Income: $51.87 billion, versus $52.44 billion as expected by analysts, according to Refinitiv.
Microsoft posted its slowest revenue growth since 2020, down 12% year over year in the quarter that ended June 30, according to a statement. The company’s earnings per share fell outside consensus for the first time since 2016, with net income rising 2% to $16.74 billion.
The biggest challenge in the quarter came from the deterioration of the foreign exchange rate. Microsoft said it reduced revenue by $595 million and earnings by 4 cents per share. In June, Microsoft lowered its quarterly revenue and earnings guidance only due to fee fluctuations. Revenue and earnings for the quarter came in at the low end of the ranges Microsoft had laid out in June.
Microsoft’s Intelligent Cloud segment, which includes the Azure public cloud for hosting applications, SQL Server, Windows Server and enterprise services, generated $20.91 billion in revenue. That was 20% and below the consensus of $21.10 billion among analysts polled by StreetAccount.
The company said revenue from Azure and other cloud services rose 40%, compared with 46% in the previous quarter. Analysts polled by CNBC had expected 43.1%, while the StreetAccount consensus estimate was 43.4%. Microsoft does not disclose Azure revenue in dollars. But CEO Satya Nadella boasted about winning Azure’s biggest deals during a conference call with analysts.
“We’re seeing larger, longer-term commitments and a record number of $100 million 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 slightly less than the StreetAccount consensus of $16.66 billion. The premium E5 tier accounts for 12% of all commercial Office 365 subscriptions, up from 8% a year ago, said Amy Hood, Microsoft’s chief financial officer.
The More Personal Computing segment featuring the Windows operating system, Xbox video game consoles, Bing search engine and Surface devices generated $14.36 billion in revenue for the quarter. Revenue rose 2% year-over-year and barely missed the StreetAccount consensus of $14.65 billion. Microsoft said search and news ads, excluding traffic acquisition costs, grew 18% thanks to higher search volume and search revenue. However, a contraction in advertising spending resulted in a $100 million decrease in revenue for the search and news advertising and LinkedIn categories.
Sales of Windows licenses to hardware manufacturers fell 2% in the quarter. Technology industry researcher Gartner said earlier this month that logistics disruptions in the quarter had contributed to a 12.6% drop in quarterly PC shipments, a key contributor to that metric. The company said factory closings in China in April and May and a worsening PC market in June cut Windows revenue from hardware makers by $300 million.
Headwinds from exchange rate ad spending and computer sales were relatively well understood by investors heading into the earnings report, said Peter Choi, a senior research analyst at Vontobel Asset Management, which held $1.11 billion in shares of Microsoft in late March, according to a filing.
“The core franchises that represent what people are most excited about Microsoft owning — those were the most resilient areas, and they continue to shine with maybe a touch of slowdown, but those parts of the business were certainly more calming,” Choi said. .
Microsoft saw $126 million in operating expenses related to its decision to stop selling products and services in Russia following the country’s invasion of Ukraine.
During the quarter, Nadella announced that employees will get a raise and the company introduced services to help customers deal with security incidents.
Excluding the after-hours move, Microsoft shares are down 25% so far this year, compared with a roughly 18% drop in the S&P 500 index of U.S. stocks.
Executives will discuss the results with analysts and issue guidance in a webcast beginning at 5:30 p.m. ET.
This story is developing. Please check back for updates.
