And… enter the giants. Earnings season for the stock market titans kicks off this week and following the end of Tuesday’s (Jan 24) trading action, Microsoft (NASDAQ:MSFT) will step up to deliver results for the second quarter of fiscal 2023 (December quarter).
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With macro worries now moving beyond Microsoft’s more cyclical segments such as gaming and advertising and into enterprise-focused lines like Azure, Raymond James analyst Andrew Marok notes that “sentiment has become more cautious.”
“We remain confident in our estimates, which were on the lower side of consensus entering the quarter,” said the analyst, “but are taking a slightly more cautious approach to modeling F2H23 given what we expect is a persistent sluggish macro backdrop.”
Marok is calling for revenue of $52.968 billion, although the EPS forecast has been lowered from $2.29 to $2.17.
The biggest “wildcard” to keep an eye on is Azure. Marok is looking for 30% year-over-year growth, a forecast for which he remains “cautiously optimistic.” While Marok believes the cloud model’s “flexible element” might point to “further spending consolidation from on-premise under macro duress,” the analyst also highlights the fact that as the majority of such big deals require long-term commitments, due to the current macro backdrop these “might be difficult to secure.”
Indeed, the macro backdrop is hard to avoid right now, something Microsoft is evidently fully aware of given the company recently announced a 5% cull to the workforce – roughly 10,000 employees will be losing their jobs by March 2023. The layoffs amount to the second biggest in Microsoft’s history (behind only the 18,000 reduction taken in 2014 as part of the job cuts in Nokia’s Devices and Services business). Marok expects most of the cuts to come from the More Personal Computing (MPC) segment with Marok anticipating only “under-performers” will lose their Azure jobs due to the company needing to stay ahead of the curve in tech and make sure Google – who are apparently finding it difficult to recruit for Google Cloud – does not end up acquiring the talent.
“The move, while surprising in its scale given MSFT’s relatively lower exposure to macro than many Big Tech peers,” notes Marok, “shows a commitment to margin defense despite top-line shakiness.”
All told, Marok stays with an Outperform (i.e., Buy) rating to go along with a $280 price target. The figure suggests shares will climb 15% higher over the coming months. (To watch Marok’s track record, click here)
Most on the Street are down with Marok’s take. While 2 analysts stay on the sidelines and one recommends to Sell, all 25 other analysts join him in the bull camp, giving the stock its Strong Buy consensus rating. The experts see the shares adding ~16% in the months ahead, considering the average target stands at $282.16. (See Microsoft stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
