Microsoft (MSFT-US) announced after the market on Tuesday (26th) that the fourth-quarter profit and revenue of the fiscal year were affected by foreign exchange losses and other factors, which did not reach the consensus of Wall Street, but due to the optimistic financial forecast for 2023, the incentive rose by about 4% after the market.
Recently confirmed, Microsoft closed down 2.68% on Tuesday and rose $10.10, or 4.01%, to $262.10 per share in after-hours trading.
FY2023 Q1 financial forecast key data vs. analyst expectations
First-quarter revenue is expected to range from $49.25 billion to $50.25 billion, with a median of $49.75 billion, and implied revenue growth of 10%, reflecting deteriorating PC sales and decelerating growth in cloud infrastructure, said Microsoft Treasurer Amy Hood .
- Revenue: Median $49.75 billion vs. $51.49 billion (Consensus Estimates polled by Refinitiv)
- Implied gross margin: 69.85% vs. 69.30% (StreetAccount survey consensus)
For the full fiscal year 2023, Microsoft reiterated its guidance for the previous quarter despite changing economic conditions.
“We continue to expect double-digit percentage growth in revenue and operating profit in constant exchange rates and U.S. dollars.” Hood mentioned that Microsoft will extend the service life of servers and network equipment from 4 years to 6 years year. Microsoft made a similar move in 2020.
Key data of the fourth fiscal quarter (ending on 6/30)
- EPS: $2.23, adjusted vs. $2.29 (Consensus Estimates polled by Refinitiv)
- Net Profit: Up 2% YoY to $16.74 billion.
- Revenue: Up 12% YoY to $51.87 billion vs. $52.44 billion (Consensus Estimates polled by Refinitiv)
Microsoft’s fourth-quarter revenue rose 12% year-on-year, the slowest revenue growth rate since 2020, and EPS was below Wall Street consensus for the first time since 2016.
Microsoft said,The biggest challenge in the fourth quarter is the deteriorating exchange rate, resulting in a loss of $595 million in revenue and a loss of 4 cents in EPS. Microsoft lowered its quarterly revenue and net profit forecasts in June due to currency fluctuations, and the fourth-quarter revenue and net profit figures were at the bottom line of the range Microsoft proposed in June.
Q4 revenue performance by sector
Intelligent Cloud Business Unit (Intelligent Cloud)
This division includes Azure Public Cloud, Windows Server, SQL Server, Visual Studio, GitHub and Enterprise Consulting Services)
- Revenue: Up 20% year over year to $20.91 billion, missing expectations. (StreetAccount estimated at $21.1 billion)
Revenue from Azure and other cloud services rose 40%, down from 46% growth in the previous quarter and below analysts’ previous forecast of 43.1% growth and a StreetAccount consensus estimate of 43.4% growth.
Microsoft didn’t break out the exact amount of Azure revenue, but CEO Satya Nadella spoke to analysts on the earnings call about winning bigger Azure deals during the quarter.
“We’re seeing bigger, longer-term commitments this quarter, and record-breaking deals in the $100 million-plus and $1 billion-plus range,” he said.
Productivity and Business Processes
This division includes businesses such as Office productivity software, LinkedIn and Dynamics.
- Revenue: Up nearly 13% year over year to $16.6 billion, slightly below expectations. (StreetAccount consensus estimate is $16.66 billion)
Chief Financial Officer Amy Hood said high-end E5 subscription accounts accounted for 12 percent of all Office 365 business subscriptions, up from just 8 percent a year ago.
More Personal Computing
This division includes Windows operating systems, Surface devices, Xbox consoles, and the Bing search engine.
- Revenue: Up 2% year over year to $14.36 billion, slightly below expectations. (StreetAccount consensus estimate is $14.65 billion).
Microsoft said search and news ads, excluding traffic acquisition costs, or TAC, rose 18 percent, driven by growth in search volume and revenue per search. Still, the contraction in ad spending reduced revenue from search and news ads and the LinkedIn category by $100 million.
Microsoft’s fourth-quarter Windows licensing revenue from device makers fell 2%. Technology industry research firm Gartner estimated earlier this month that logistics disruptions caused a 12.6 percent drop in PC shipments in the quarter.
Microsoft said factory shutdowns in China in April and May and a deterioration in the computer market in June led to a drop in Windows revenue from the device maker by about $300 million.
Currency hurdles from ad spending and computer sales are relatively easy for investors to understand, said Peter Choi, senior research analyst at Vontobel Asset Management. The company held $1.11 billion worth of Microsoft stock at the end of March, according to the filing.
Choi believes that the core licensing business is a more resilient area that will continue to shine even in times of slowdown, and that part of the business must be reassuring.
After the Russian-Ukrainian war, Microsoft decided to stop sales and services in Russia, resulting in $126 million in operating expenses.
During the quarter, Nadella announced that it would increase employee salaries and launch a service to assist clients with security incidents.
Excluding after-hours volatility, Microsoft’s stock price has fallen 25% so far this year.S&P 500 The index is down about 18% over the same period.