MS, Despite Poor Earnings, Forecasts Double-Digit Growth Next Year...Stock Price Up 5% (Comprehensive)

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] Microsoft (MS) recorded its slowest growth in two years during the April-June period this year due to decreased PC demand and the impact of a strong dollar. However, MS issued a rosy forecast that both revenue and operating profit for the 2023 fiscal year, which began this month, will grow in double digits, leading to a rebound in its stock price that had been falling due to poor earnings, rising more than 5%.

According to Bloomberg and others on the 26th (local time), MS announced that its revenue for the fourth quarter of fiscal year 2022 (April-June) was $51.9 billion (approximately 68 trillion KRW), up 12% year-on-year. Net income increased by 2% to $16.7 billion, with earnings per share of $2.23. These figures fell short of market expectations of $52.4 billion in revenue and $2.29 earnings per share. CNBC reported that MS’s revenue growth was the lowest since 2020, and this was the first time since 2016 that earnings per share missed market expectations.

The reason MS’s performance fell short of expectations was due to reduced demand for cloud services and PC products. Revenue growth in the cloud computing segment, represented by Azure, was 40%, down from 46% in the previous quarter, and personal PC sales revenue increased by only 2% year-on-year to $14.4 billion. Derek Wood, an analyst at investment bank Cowen, analyzed that consumers are postponing purchases due to recession concerns. Revenue related to search and news advertising and social networking service (SNS) subsidiary LinkedIn decreased by $100 million due to reduced advertising spending, and Windows license sales also declined by 2% during this quarter.

Additionally, the strongest dollar in 20 years also impacted earnings. The dollar index has risen 10% this year and recently surged, affecting overseas revenue. MS emphasized the strong dollar situation in this earnings announcement by also releasing revenue and net income figures based on constant currency rates, unlike before. According to these figures, revenue and net income growth rates were 16% and 7%, respectively, significantly exceeding the officially announced 12% and 2%. MS stated that the revenue hit due to exchange rates was approximately $595 million, and operating earnings per share were reduced by about $0.04.

Initially, MS’s stock price fell more than 1% after the earnings announcement following market close. MS’s stock price has dropped 25% so far this year.

However, during the conference call held after the earnings announcement, MS stated that both revenue and operating profit for fiscal year 2023 (July 2022 to June 2023) will increase in double digits as previously expected three months ago, reversing the situation. Satya Nadella, MS CEO, said, "We are seeing larger and longer-term contracts," adding, "(MS) has more data center regions than any other provider and will operate 10 new ones next year." Following the optimistic outlook in the conference call, MS’s stock price rebounded and rose more than 5% compared to the closing price that day.

Meanwhile, MS revealed in this earnings announcement that operating expenses reached a record high of $126 million due to the withdrawal from its Russian business. It also added that, aside from the Russian business, it spent $113 million on severance costs due to layoffs amid the recent economic downturn. MS recently announced plans to lay off some employees in certain divisions and to be cautious about hiring new staff for the time being.

This content was produced with the assistance of AI translation services.