Software giant Microsoft reported weaker than expected June 2022 (Q4F23) quarterly earnings Tuesday, MSFT also issued worse-than-expected quarterly revenue guidance. The company made $56.2 billion in revenue and a net income of $20.1 billion during Q4. Microsoft’s cloud businesses are really driving the company’s revenue. Windows and devices revenue have been hit hard again this quarter, but Xbox has rebounded on the content side. Microsoft’s cloud, office, and server businesses continue to make up for a weaker PC market.
Investors expressed disappointment after Microsoft’s finance chief, Amy Hood, said that Microsoft probably won’t see considerable growth in artificial intelligence until first half of next year. MSFT traded at $334.75 down $16.23 or -4.62% after the report.
Microsoft Fiscal Fourth Quarter Earnings After Tuesday Close
Conference call: 5:30 p.m.
Microsoft Q4 23 Earnings
Highlights
- Net income $20.1 billion, up 20 percent.
- $2.69 earnings per share v consensus estimates of $2.55 according to FactSet.
- Revenue $56.2 billion in revenue, up 8 percent v consensus estimates of $55.5 billion according to FactSet.
- Intelligent cloud segment 21% year-over-year in operating income including much of Microsoft’s current AI offerings.
- Personal computing sales down 4% year-over-year, which includes Windows, Bing and gaming.
For the first time last quarter, revenue in the quarter from the Microsoft Cloud metric, encompassing Azure, commercial Office 365 subscriptions, commercial parts of LinkedIn and Dynamics 365, exceeded 50% of overall company revenue.
MSFT: Stock Market Reaction
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OpenAI
Microsoft has expanded its partnership in OpenAI, an artificial intelligence group founded by Tesla (TSLA) CEO Elon Musk, with a multibillion investment that extends its collaboration with OpenAI and its key consumer and business product, the ChatGPT chatbot.
Chief Financial Officer Amy Hood said on Tuesday’s earnings call that “even with strong demand and a leadership position,” Microsoft’s “growth from our AI services will be gradual.”
Microsoft’s AI for its Azure cloud-computing business needs to ramp, and the company is working toward the general availability of its Copilot productivity product. Microsoft’s AI revenue impacts will thus be weighted toward the second half of the new fiscal year that just began, Hood continued. Meanwhile, she expects that Microsoft’s capital expenditures will rise sequentially each quarter “as we scale to meet demand signals.”
Microsoft Cloud
- Microsoft’s Intelligent Cloud business segment, which includes the Azure public cloud, as well as Windows Server, SQL Server, Nuance and Enterprise Services, generated $24.0 billion, while analysts had been anticipating $23.8 billion. The growth rate was 17% on a currency-neutral basis in quarterly revenue.
- Revenue for Azure and other cloud services was up 26%, or 27% in constant currency. Microsoft’s forecast had been for 26% to 27% in constant-currency Azure sales growth, while the company posted 31% constant-currency growth on the metric in the March period. The FactSet consensus was for 27% growth in constant currency.
- Microsoft 365 Consumer subscribers have grown to 67 million, up from the 65.4 million reported in the previous quarter. Microsoft launched a new $1.99 a month Microsoft 365 Basic subscription earlier this year, which is clearly having some impact on numbers.
- Office commercial products and cloud services revenue also grew by 12 percent year over year thanks to Office 365 Commercial revenue growth of 15 percent.
- Microsoft’s intelligent cloud business saw revenue of $24 billion this quarter, up 15 percent.
- Azure and other cloud services revenue growing by 26 percent this quarter, driven by what Microsoft describes as strong demand for its consumption-based services.
- Microsoft Cloud sales passed $110 billion in the 2023 fiscal year, with Azure making up more than 50 percent of this revenue for the first time.
- A slide disclosed in the FTC v. Microsoft hearing revealed Azure contributed around $34 billion in revenue for Microsoft’s 2022 fiscal year.
- Azure OpenAI now has more than 11,000 customers and that more than 27,000 organizations are using GitHub Copilot.
Microsoft is the clear No. 2 provider of on-demand computing processing and storage behind market pioneer Amazon.com.
Productivity and Business Processes
- Productivity and Business Processes segment that contains Microsoft 365 productivity software subscriptions (rebranding the bundle from Office 365), LinkedIn and Dynamics, had $18.3 billion, up 10% from a year before, or up 12% in constant currency. Analysts had been looking for $18.1 billion.
More Personal Computing
- Microsoft’s personal-computer segment sales were down 4% year-over-year, which includes Windows, Bing and gaming, to $13.9 billion and was off 3% on a constant-currency basis. The FactSet consensus was for $13.6 billion.
- PC shipments still suffer after a boom in PC sales during 2020 and 2021.
- Revenue for the More Personal Computing segment, which includes Windows and Xbox content and services, dropped 4%
- Note that revenue from HoloLens augmented-reality devices will appear in the More Personal Computing segment instead of the Intelligent Cloud segment.
- Microsoft is currently going through approvals for its $75 billion deal for Activision Blizzard Inc.
Outlook
“Organizations are asking not only how – but how fast – they can apply this next generation of AI to address the biggest opportunities and challenges they face – safely and responsibly,” said Satya Nadella, the chairman and chief executive officer of Microsoft, in a release announcing the earnings. “We remain focused on leading the new AI platform shift, helping customers use the Microsoft Cloud to get the most value out of their digital spend and driving operating leverage.”
For the September quarter, Microsoft anticipates 25% to 26% in constant-currency Azure growth. The cloud migration is still in the “early innings,” Chief Executive Satya Nadella said on the call, while also highlighting a “new world of AI driving a set of new workloads.”
Source: MSFT
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