Microsoft Stock Turns Lower As Cloud Outlook Offsets Earnings Beat

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Microsoft’s flagship Azure cloud unit posted solid revenue growth, boosting the tech giant’s Street-beating bottom line.

Updated at 6:49 pm EST

Microsoft  (MSFT) – Get Free Report posted better-than-expected second quarter earnings late Tuesday, with stable growth rates for its key cloud computing division and solid gains from its business unit.

Shares slipped lower in after-hours trading, however, when the group forecast current quarter revenues for its intelligent cloud division of between $21.7 billion and $22 billion, a tally that missed Refinitv forecasts. 

For the December quarter, Microsoft said revenues for Azure, its flagship cloud division, rose 31% from last year, topping Street forecasts but slowing from earlier gains in the mid to high 40-percent range as companies continue to pull back on digital infrastructure spending and the dollar continued its 2022 climb.

Overall group revenues rose 1.9% to $52.7 billion for Microsoft’s fiscal second quarter, coming in just shy of analysts’ estimates of a $52.97 billion tally.

Microsoft’s bottom fell 12% to $16.4 billion while adjusted earnings fell 6.5% from last year to $2.32 per share, just ahead of the Street consensus forecast of $2.30 per share. 

Productivity and business division revenues, which includes Office 365, rose 7% to $17 billion, Microsoft said, while Intelligent Cloud revenues were up 18% to $21.5 billion, a tally the company had guided in late October. More Personal Computing revenues, which includes Windows, fell 19% to $14.2 billion. 

“The next major wave of computing is being born, as the Microsoft Cloud turns the world’s most advanced AI models into a new computing platform,” said CEO Satya Nadella. “We are committed to helping our customers use our platforms and tools to do more with less today and innovate for the future in the new era of AI.”

Microsoft shares were marked 0.5% lower in after-hours trading immediately following the earnings release to indicate a Wednesday opening bell price of $240.91 each.

“Everyone knows that growth is slowing in Azure; investors just want to see that it is slowing less than anticipated. And that’s exactly what happened this quarter, which allows investors to focus on the other aspects of the stock, which should bear fruit for company sentiment,” said David Wagner, portfolio manager at Aptus Capital Advisors.

“After Azure, investors need to hear a lot of qualitative things for the company … specifically Azure growth moving forward and public commentary regarding the back half of the year from a spending perspective,” he added. 

Last week, Microsoft unveiled plans earlier this month to slash around 5% of its global workforce as it looks to ‘align costs’ with customer demand and boost investment in areas such as AI and other advanced technologies. The company said severance payments and other costs linked to the cuts were pegged at $800 million.

Microsoft said the cuts, which it expects to conclude in March, will result in the loss of around 10,000 jobs and a 12 cent hit to December quarter earnings, but added that it would continue to invest in areas such as AI and other advanced technologies. 

The tech giant’s job cuts follow big headcount moves from Amazon  (AMZN) – Get Free Report and Meta Platforms  (META) – Get Free Report late last year, with the former unveiling plans to reduce its global workforce by around 18,000 and the latter planning job cuts of around 11,000.

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