The market continues to remains broadly bullish on Microsoft (MSFT), particularly for this quarter ahead of its fiscal 2023 Q1 earnings report. The company’s fast-growing Azure cloud platform and the Intelligent Cloud business are cornerstones of what is expected to be another banner year.
However, the stock’s performance doesn’t display the same level of optimism. Down 28% year to date, while falling 22% in twelve months, Microsoft has had a challenging year so far, suffering with the rest of its tech peers during the market correction. Supply chain issues and rising inflation has been part of the reason that many once high-flyers continue vastly underperforming the overall market. But for Microsoft, which has beaten earning in seven straight quarters, a case can be made it is being unfairly treated.
The software giant will look to bounce back when it reports first quarter fiscal 2023 earnings after the closing bell Tuesday. The cloud business will be the main driver of how high that bounce is. Microsoft forecast a revenue range of $20.3 billion to $20.6 billion in Intelligent Cloud revenues in the first fiscal quarter. Of that total, the mid-point assumed 20% year-over-year growth, compared to revenues of $17 billion in the year-earlier period. Just as impressive, Azure and cloud services grew revenues 40% year over year in the last-reported quarter.
Likewise, investors expect Azure to have sustained strong growth in the just-ended quarter. That’s not the same for the PC business, however, which has experienced some weakness. Tech research firm Gartner estimates PC shipments to have declined roughly 20% in this third quarter, which could pressure Microsoft’s Personal Computing business and possibly its Windows revenues which declined 2% year-over-year in the last quarter due to inflationary pressures, supply chain challenges, and the slowing PC market. The company’s results within each segment will be closely-watched.
For the quarter that ended September, the Redmond, Wash.-based tech giant is expected to earn $2.31 per share on revenue of $49.73 billion. This compares to the year-ago quarter when earning were $2.27 per share on $45.32 billion in revenue. For the full year, ending June 2023, earnings are projected to rise 8.9% year over year to $10.03 per share, while full-year revenue of $219.53 billion would mark a year-over-year increase of 10.7%.
Fresh from its $69 billion, the all-cash deal for video game giant Activision Blizzard (ATVI), Microsoft is making a play for stronger gaming revenue. The all-cash deal is not cheap. But the deal gives Microsoft a massive ramp in the mobile gaming industry, among other advantages in building its own version of the metaverse. In the fourth quarter, the company forecasted double-digit revenue and operating income growth in fiscal 2023. Notably, the solid forecast did not include any impact from Activision.
The planned close of the Activision deal is another item that will be closely watched on Tuesday. Any boost Activision can provide to complement revenue from LinkedIn and its cloud technology Azure, will benefit MSFT stock. Q4 Cloud services in revenue of $25 billion rose 28% year over year, thanks to strong demand and rising customer commitment. The company reportedly gained cloud market share from rivals like Amazon (AMZN), and Alphabet (GOOG, GOOGL).
Still, even with Azure’s year-over-year growth, there was a noticeable sequential slowdown due to the aforementioned macro headwinds. These headwinds aside, Microsoft still has plenty of growth runway ahead from these well-established trends. On Tuesday, the company’s guidance will gauge how confident the management feels about its growth potential and the company’s ability to emerge from these challenges.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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