Microsoft Leads a Bear Earning Season
Microsoft Leads a Bear Earning Season, the past year has been a roller coaster for Microsoft, but the company is finally starting to see some stabilization. After a strong Q2 earnings report, investors are optimistic about the future of the tech giant.
Topics
Strong Backbone
Nosedive
Brighter Future
Strong Backbone
Microsoft reported earnings of $32.9 billion, with a net income of $13.6 billion. This was up from last quarter’s revenue of $32.2 billion, and net income of $12.6 billion. The company’s stock price rose in after-hours trading on the news.
It was a solid quarter for Microsoft across the board, with all divisions seeing growth except for gaming (which was flat). The biggest drivers were Azure cloud computing and Office 365 commercial products. Both businesses saw double-digit percentage revenue growth compared to last year.
Analysts expected Microsoft to continue its momentum. The company has several major product launches planned, including a new version of Windows 10 and Office 2019. If these products are well-received, it could be another strong quarter for Microsoft.
Nosedive
But this wasn’t the case, Microsoft’s shares took a nosedive in after-hours trading Tuesday, as the company’s cloud-computing growth hit a sudden deceleration. Executives guided for holiday-season revenue to come in more than $2 billion lower than expectations, sending shockwaves through the market.
Investors had been high on Microsoft’s prospects in recent months, as the company has benefited from the shift to remote work and learning during the pandemic. But those hopes were dashed Tuesday night, as Microsoft warned that its sales growth would slow sharply in the coming quarter.
The news is a major setback for Microsoft and its CEO Satya Nadella, who have been riding high on the success of Azure, its cloud computing platform. Azure has been one of Microsoft’s fastest-growing businesses in recent years and was seen as key to driving future growth for the company.
But now it looks like Azure’s momentum may have stalled, at least temporarily. This is sure to spook investors who were banking on continued strong growth from Microsoft going forward.
Brighter Future
The current quarter is shaping up to be a tough one for Microsoft Azure. Chief Financial Officer Amy Hood predicted a similar sequential reduction for Azure, predicting a five-point drop in percentage growth on a constant-currency basis. This comes as no surprise given the recent layoffs of less than 1,000 employees earlier this month.
Despite the challenges, Microsoft remains committed to Azure and its customers. In fact, Hood hinted that further cost cutbacks may be on the way in order to keep Azure competitive. So even though things may be tough right now, it’s important to remember that Microsoft is still fully invested in its cloud platform and will do whatever it takes to keep it running smoothly.
Regardless of the weak earnings guidance from Microsoft, investors should not be discouraged from holding the stock. The company has a strong history of delivering long-term growth, and its recent drop does not reflect this potential. Microsoft is still a great company to own for the long term.
