MSFT stock: Microsoft’s cloud services boost dividend

Microsoft (MSFTThe stock sank on Wednesday after the company reported mixed results for the December quarter and gave disappointing guidance. MSFT stock fell more than 3% on the news.


The Redmond, Washington-based company late Tuesday beat forecasts for earnings in the fiscal second quarter, but sales were soft. Also, revenue forecasts for the March quarter came in much lower than Wall Street’s estimates.

Microsoft earned $2.32 adjusted share on sales of $52.7 billion in the December quarter. Analysts polled by FactSet had forecast Microsoft earnings of $2.29 per share on sales of $53 billion. On an annual basis, Microsoft’s profits fell 6% while sales rose 2%.

It was Microsoft’s first profit decline in five years, since the December quarter of 2017.

MSFT stock decline in expectations

In morning trading on stock market todayMSFT shares fell 3.5% to 233.66 points. During Tuesday’s session, MSFT fell by 0.2%, closing at 242.04.

In the December quarter, Microsoft Azure infrastructure and other cloud computing services reported higher-than-expected growth over the period. However, Azure’s growth is slowing down.

“Microsoft Cloud revenue was $27.1 billion, up 22% (up 29% in constant currency) year-over-year, as our business offerings continue to drive value for our customers,” said Amy Hood, Chief Financial Officer, Microsoft Cloud. New release.

Among Microsoft’s three business sectors, Intelligent Cloud was the best performer in the December quarter. Revenue in this segment increased 18% year over year to $21.5 billion. The unit includes server products and cloud services such as Azure.

Azure and other cloud services reported revenue growth of 31%, or 38% in constant currency. These views topped a 37% growth in constant currency. Growth was 42% in the previous quarter.

Meanwhile, Microsoft’s Productivity and Business Operations unit saw sales increase 7% to $17 billion. The division includes Office productivity software as well as Business Dynamics and LinkedIn.

Windows PC, hardware sales are poor

Finally, Microsoft’s personal computing unit saw sales drop 19% to $14.2 billion. The module includes Windows PC Software, Xbox Video Games, Surface PCs, Internet Search, and Advertising.

Windows license revenue collapsed 39% in a quarter of holiday sales amid slumping PC sales. Hardware revenue also decreased by 39%. Xbox content and services revenue fell 12% in the period.

Jefferies analyst Brent Thiel said Microsoft’s results were “better than feared”. Rating MSFT stock as Buy with a price target of 280.

On a conference call with analysts, Microsoft executives projected sales that fell short of Wall Street estimates for the fiscal third quarter.

Microsoft forecast sales of $50.5 billion to $51.5 billion for the current quarter. The midpoint of $51 billion was well below Wall Street’s target of $52.4 billion for the March quarter. In the same quarter last year, Microsoft generated $49.4 billion in sales.

The company also expected Azure sales growth to continue to slow to about 30%, or 31% in constant currency.

Microsoft News: Layoffs, AI Investments

The earnings report came next Microsoft announced the layoffs of a large number of workers And plan to cut costs last week. The company is cutting 10,000 jobs, or about 4.5% of its workforce. Microsoft earned $1.2 billion in fees in the quarter just ended related to severance costs and other restructuring expenses. This cut its dividend by 12 cents per share.

Microsoft also warned that customers were cutting back on spending in a difficult macroeconomic climate.

At the same time, Microsoft said it will continue to add employees and invest in growth areas such as cloud computing and artificial intelligence.

On Monday, Microsoft announced a new investment, reportedly worth $10 billion, in artificial intelligence startup OpenAI. OpenAI is the foundation behind ChatGPT script generation and the Dall-E image generator. Microsoft previously invested in OpenAI in 2019 and 2021.

Microsoft provides the Azure cloud computing infrastructure for OpenAI. They also add OpenAI models to consumer and enterprise software products.

MSFT stock has a Composite Medium rating

MSFT stock ranks second among six stocks in IBD’s desktop software industry group, according to IBD stock check. It’s average IBD composite classification From 58 out of 99.

The IBD Composite Rating combines five separate property ratings into one easy-to-use rating. The best growth stocks have a composite rating of 90 or better.

Follow Patrick Seitz on Twitter at @tweet For more stories on consumer technologies, software and semiconductor stocks.

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