Microsoft earnings fall short of estimates as cloud services demand slows

Microsoft Corp. reported quarterly sales and profit that fell short of analysts’ projections, held back by the stronger dollar and weaker corporate demand for cloud services and software as global economic growth totters. Revenue in the fourth quarter, which ended June 30, rose 12% to $51.9 billion, the software maker said Tuesday in a statement. Net income rose to $16.7 billion, or $2.23 a share. On average, analysts had estimated sales of $52.4 billion and $2.29 a share in earnings, according to a Bloomberg survey. Revenue growth in Azure cloud-computing services slowed to 40%, a closely watched rate that also missed predictions. Subscribe to Ad Age Sign up now for the latest industry news and analysis Click here The surging US dollar, which reduces the value of overseas sales, hurt revenue and profit in the quarter, prompting Microsoft to cut its forecasts in early June. The company has decelerated hiring in divisions like Azure, which sells corporate cloud services, and Office, which makes productivity software. Overall sales rose the least since September 2020, with Azure growth rates continuing to tick lower and the broader personal-computer market on track for an annual decline. Demand slowed further in the last few weeks of Microsoft’s quarter, as customers delayed purchases in anticipation of a possible global recession, said Derrick Wood, an analyst at Cowen. “Post-Memorial Day, things started getting slower and you started hearing more cautious buying behavior and longer sales cycles,” Wood said. Those headwinds may impact the company’s forecast even more than the results from the recent quarter, he said, and currency exchange rates have gotten even less favorable since Microsoft cut projections last month. Analysts predicted Azure revenue would rise 44%, according to a note from Jefferies. In the fiscal third quarter, the division posted growth of 46%. Microsoft shares slipped about 1% in extended trading following the report, after declining 2.7% to $251.90 at the close in New York. While the stock jumped 51% in 2021, it has fallen 25% so far this year amid a rout in large technology stocks. Redmond, Washington-based Microsoft in June reduced its sales and profit forecast for the quarter, blaming the stronger US dollar for a revenue impact of $460 million. Earlier this month, Microsoft cut less than 1% of its 180,000-person workforce, affecting groups such as consulting and customer solutions, but said it planned to finish the current fiscal year with an increased headcount. The company has also eliminated many open jobs and slowed hiring including in units that make Azure, Windows, Office and security software. These hiring constraints will continue for the foreseeable future, the company said last week. Apple, Amazon and Google—which also reported earnings Tuesday—have sounded similar notes of caution on hiring, and shareholders are scrutinizing technology industry results closely for signs of wilting demand. Social media companies Twitter Inc. and Snap Inc. last week reported disappointing sales. PC shipments dropped more than 15% in the quarter, according to IDC, although they remain above pre-pandemic levels. Microsoft has been able to post higher PC software revenue by shipping more versions of higher-priced corporate versions. Tracking layoffs and budget cuts How brands and agencies are bracing for a recession Click here —Bloomberg News

Microsoft earnings fall short of estimates as cloud services demand slows

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