Microsoft’s mixed bag of results

Microsoft’s second-quarter profit topped analysts’ estimates on the back of strong performance from its Azure cloud services business.

The results sent shares soaring in late trading, but these gains were erased after Microsoft CFO Amy Hood said Azure sales in the current period would slow by 4 or 5 points.

Although Microsoft’s cloud business dictated the share price’s recent moves, it is not the only reason Microsoft is the world’s second-largest company with a $1.8 trillion market cap.

It has numerous product lines and revenue streams, which include Windows, Office, Azure, Xbox, and LinkedIn.

Microsoft generates most of its revenue from its intelligent cloud segment, followed by productivity and business processes, and personal computing.

In the wake of combatting high inflation rates with interest rates, Microsoft experienced a significant contraction in 2022, with its share price falling over 28%.

After Microsoft released its Q1 results for 2023 in October 2022, it delivered poor forecasts for the 2023 Q2 period.

It forecasted growth between 11% to 13% in its productivity and business processes segment and 22% to 24% in its cloud intelligence segment.

However, its personal computing segment guidance was poor, with an estimated contraction between 15.6% and 17.3%.

The implied total revenue expectation from the Microsoft team for the Q2 period was between $54.4 billion and $55.6 billion.

Microsoft’s Q2 2023 results for the period ending 31 December 2022 reported revenue of $52.75 billion – a 2% increase from Q2 2022.

It wasn’t close to the company’s guidance but slightly below consensus analyst expectations of $52.94 billion.

This result marks a significant slowdown in growth from previous periods, with the lowest quarterly revenue growth since 2017.

Microsoft reported a net profit of $2.32 per share, slightly higher than analyst consensus expectations of $2.29 per share.

Microsoft said the decline in its personal computing segment was driven by lower performance in windows, devices, and gaming products.

Microsoft CEO Satya Nadella said the company experienced an acceleration in digital spending during the pandemic.

The tide has changed, and it is now seeing businesses and individuals exercising caution in these expenses due to macroeconomic uncertainty.

It saw strong growth in its cloud operations led by Microsoft Azure and strong demand for its Office 365 commercial solutions.

Microsoft currently trades at a P/E ratio of 26 times earnings. It has a 10-year average P/E ratio of 28.9 and a 5-year average P/E ratio of 34.65 times earnings.