Technology bigwig Microsoft Corporation (NASDAQ: MSFT) failed to meet fourth-quarter expectations on both revenue and earnings count. Yet, the stock rose over 6% during after-hours trading on the company’s renewed expectations for the future.
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Microsoft attributed the weak quarterly performance to unfavorable foreign exchange rates, extended shutdowns in China, slowing personal computer (PC) demand, and sluggish advertising spending. Additionally, the company recorded operating expenses to the tune of $126 million related to bad debt expense, asset impairments, and severance owing to its decision to scale down its Russian business.
Notably, Microsoft continued to reward shareholders with share buybacks and dividends worth $12.4 billion during the quarter.
Earnings and Revenue Miss Expectations
Microsoft’s Q4 diluted earnings of $2.23 per share rose 3% year-over-year but failed to beat analyst estimates of $2.29 per share.
Similarly, quarterly revenue of $51.86 billion leaped 12% year-over-year but was $490 million short of analyst estimates.
On an annual basis, diluted earnings of $9.65 per share grew 19.9% and FY22 revenue of $198.27 billion advanced nearly 18% compared to FY21.
Segments Show Resilience Compared to Q4FY21
Microsoft’s Productivity and Business Processes segment posted revenue of $16.60 billion, up 13% year-over-year. This was boosted by a 15% growth in Office 365 Commercial revenue and a 26% increase in LinkedIn revenue. Similarly, Dynamics products and cloud services revenue rose 19%.
Notably, revenue from the Intelligent Cloud segment shot up 20% year-over-year to $20.9 billion, aided by a 40% jump in Azure and other cloud services revenue.
However, due to a decline in sales of Windows OEM owing to production shutdowns and slow demand for PCs, revenue from More Personal Computing showed a marginal 2% gain. Similarly, Xbox Content and Services also suffered due to lower engagement hours, and Xbox Hardware fell 11% due to poor demand. Nonetheless, Search and Ad News advertising (excluding traffic acquisition costs) grew 18%, and Surface revenue rose 10%.
Microsoft Optimistic on FY23 Outlook
Looking ahead, Executive VP and CFO of Microsoft, Amy Hood, noted, “We continue to expect double-digit revenue and operating income growth in both constant currency and U.S. dollars. Revenue growth will be driven by continued momentum in our commercial business and a focus on share gains across our portfolio.”
Nonetheless, based on the current macro environment, Microsoft expects foreign exchange rates and slower PC demand to continue impacting its first quarter fiscal 2023 results.
In total, Microsoft expects Q1FY23 revenue to fall between $49.25 and $50.25 billion, while the consensus for revenue is pegged at $51.40 billion.
Analysts Remain Bullish about MSFT
Wedbush analyst Daniel Ives was encouraged to see Azure’s core growth in line with expectations and strong commercial bookings. The analyst maintained a Buy rating and a $340 price target on the stock, which implies nearly 35% upside potential to current levels.
Ives noted, “MSFT just reported its June results which will be front and center across the Street to gauge cloud and enterprise demand in this swirling macro… While the headline slight miss will cause agita on the Street with a knee jerk reaction, this is largely FX and China shutdown driven (PC driven). The core DNA of the MSFT growth story is cloud and core Azure growth which was healthy this quarter and appears to have momentum into 2023 despite economic headwinds.”
Similarly, several analysts maintained their bullish stance on MSFT stock ahead of its earnings, citing strength from Azure and Commercial offerings. Overall, the stock commands a Strong Buy consensus rating based on 29 Buys and one Hold. The average Microsoft price target of $339.72 implies 34.9% upside potential to current levels. Meanwhile, MSFT stock has lost 24.4% so far this year.
Bloggers Are Bullish about MSFT
TipRanks data shows that financial blogger opinions are 92% Bullish on MSFT, compared to a sector average of 66%.
Ending Thoughts
Even though Microsoft reported earnings and revenue marginally lower than its own revised forecast and Wall Street expectations, the technology giant maintained its double-digit forecast for fiscal 2023. Notably, analysts and bloggers share the same enthusiasm about Microsoft’s future growth trajectory despite the near-term foreign exchange headwind and sluggish demand expectations.
Moreover, Microsoft scores a nine on TipRanks Smart Score Rating System, indicating that the stock is highly likely to outperform market expectations.
