Microsoft stock jumps after ‘surprisingly robust’ forecast calls for continued strong cloud growth

Analysts on average had expected earnings of $2.29 per share on revenue of $52.38 billion, estimates that have fallen since Microsoft cut its forecast last month due to the strengthening dollar. Yet conditions have further deteriorated since that warning.

“In the fourth quarter of fiscal 2022, changing macroeconomic conditions and other unforeseen items impacted financial results beyond what was included in our forward guidance,” Microsoft executives said. in their ad.

Microsoft shares fell nearly 3% in after-hours trading immediately after the earnings release, but jumped more than 6% after executives shared their guidance, which showed continued strong growth from Microsoft’s cloud computing offer and maintained throughout the year. revenue and margin forecasts.

Chief Financial Officer Amy Hood reported first-quarter revenue of $49.25 billion to $50.25 billion, compared to analysts’ average expectation of $51.44 billion. Although forecasts are lower than expected for the software and PC segments, cloud revenues are expected to remain strong.

Hood forecast revenue of $20.3 billion to $20.6 billion for Microsoft’s cloud segment, while analysts expected $20.58 billion, and guided Azure to grow 43% at a constant exchange rate, which should ease some concerns about slowing cloud growth. Hood predicted between $13 billion and $13.4 billion for the PC segment, versus expectations of $13.81 billion; and $15.95 billion to $16.25 billion for Microsoft’s software business, while analysts expected $16.91 billion.

For the full year, Hood maintained its expectation of double-digit percentage growth in Microsoft’s revenue and operating margins, both in constant currency and in US dollars. Analysts expected that Microsoft might weaken that forecast to only promise the earnings in constant currency.

Wedbush analyst Daniel Ives said in an email conversation with MarketWatch that this was “the direction of the Rock of Gibraltar.”

“Amazingly robust and speaks volumes about maintaining demand for cloud computing” despite deteriorating economic conditions, Ives said.

Microsoft has faced no doubts in recent years as the growth of its Azure cloud computing product, a boom in personal computer sales and increased software usage as more and more employees white collar workers working from home boosted the business during the covid19 pandemic. Microsoft’s fiscal year ended with revenue up 18% to $198.27 billion and profit up 18.7% to $72.74 billion.

However, many of these catalysts seem to be weakening. The PC boom is over, with companies reporting the biggest year-over-year decline in device shipments in years, and cloud growth is also raising concerns. Microsoft has sent signals that it is downsizing in the face of uncertainty, closing some open jobs and making selective cuts to its workforce.

Read more: It’s the end of “Never Land” for Big Tech and its workers

“As the quarter approaches, investors are understandably concerned about the multiple cross-currents that could impact Microsoft’s FY23 results and outlook: lower PC shipments putting pressure on OEM results of Windows, currency headwinds, consumer weakness and overall macroeconomic weaknesses are all potential risks,” Morgan Stanley analysts wrote in an overview of the report last week.

Microsoft’s segment results showed a bigger-than-expected slowdown for cloud and PC. The “Intelligent Cloud” segment hit $20.91 billion in revenue from $17.38 billion a year ago, missing FactSet’s average analyst estimate of $21.09 billion. The company said Azure revenue grew 40%, 46% in constant currency, after analysts on average predicted a standard growth rate of 43% and Microsoft guided a growth rate in constant currency about 47%. Microsoft does not provide comprehensive financial information about Azure, despite its main rivals – Amazon.com Inc.’s AMZN,
-1.04%
Amazon Web Services and GOOGL from Alphabet Inc.,
-0.96%
GOOG,
-1.03%
Google Cloud — revenue and profit margin breakdown of their products.

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Microsoft’s PC segment, dubbed ‘More Personal Computing’, generated $14.36 billion in revenue, up from $14.09 billion a year ago and missing analysts’ average forecast of $14.63 billion , according to FactSet. Software revenue, collected in a segment called Productivity and Business Processes, reached $16.6 billion from $14.69 billion a year ago, when analysts on average expected 16, $64 billion.

Microsoft’s stock is down 25.6% so far this year, as the S&P 500 SPX index,
-0.29%
fell 16.6% and the Dow Jones Industrial Average DJIA,
-0.41%
— which counts Microsoft as a component — was down 12%. The decline pushed Microsoft’s market capitalization to less than $2 trillion, leaving only Apple Inc. AAPL,
-0.56%
above this mark.