Most Read by Bloomberg In a conference call on Tuesday, the software giant said it expects revenue and operating income to grow at a double-digit rate for fiscal 2023, which ends next June. Currency fluctuations will reduce sales by about 4 percent for the year and about 5 percent in the current quarter, Microsoft executives said, allaying concerns that the strong U.S. dollar would have an even bigger impact on the value of overseas sales. The forecast was “shockingly strong,” said Wedbush analyst Dan Ives. The prediction “will be the guidance that will be heard around the world and the street.” Microsoft said it is attracting more big deals on its Azure cloud computing software and moving customers to more expensive cloud versions of Office programs. The company’s expenses will slow as the year progresses and as the pace of hiring slows after it added a planned 11,000 workers in the current period. The turbulent economic picture will lead some customers to turn to Microsoft products and cloud software in general because it can help them control what they spend on technology, CEO Satya Nadella said on the call. “Coming out of this macro crisis, the public cloud will be an even bigger winner,” Nadella said. Microsoft shares rose as high as $269.41 in extended trading after the forecast. They were down about 2% immediately after the earnings report, after falling to $251.90 at the close in New York. While the stock has jumped 51% in 2021, it has fallen 25% so far this year amid a rout in major tech stocks. The story continues Earlier, the company reported fourth-quarter sales and earnings that fell short of analysts’ forecasts, held back by unfavorable foreign exchange rates and weaker demand for cloud-computing services, PC software and advertising on its online properties. Revenue in the fourth quarter, which ended June 30, rose 12 percent to $51.9 billion, the software maker said in a statement. Net income rose to $16.7 billion, or $2.23 per share. Analysts on average had estimated sales of $52.4 billion and $2.29 a share in earnings, according to a Bloomberg survey. Revenue growth at Azure cloud-computing services slowed to 40%, a closely watched figure that also missed forecasts. The rising US dollar, which reduces the value of overseas sales, hurt revenue and profit in the latest quarter, prompting Microsoft to cut its forecast in early June. The company has slowed hiring in some divisions, such as Azure and Office, which makes computer productivity software. Overall sales grew less than in September 2020, with Azure growth rates continuing to hit lower levels and the broader PC market on a yearly decline. Demand slowed further in the final weeks of Microsoft’s quarter as customers delayed purchases in anticipation of a possible global recession, said Cowen analyst Derrick Wood. “After Memorial Day, things started to slow down and you started to hear more cautious buying behavior and longer sales cycles,” Wood said. Analysts had forecast Azure’s revenue to rise 44%, according to a Jefferies note. In the third quarter of the financial year, the segment saw a growth of 46%. Excluding the effect of currency, Azure growth was 1% lower than forecast in April, Chief Financial Officer Amy Hood said in an interview. But the company signed a record number of Azure contracts worth more than $100 million and $1 billion, he said. Trade bookings, a measure of future sales to enterprise customers, were “significantly” better than the company expected, rising 25 percent, a sign that enterprise demand for Microsoft software remained strong in the quarter, he said. “We do most of our commercial bookings in June,” Hood said. “It was a record quarter for us and much better than we had planned.” Redmond, Wash.-based Microsoft in June cut its fourth-quarter sales and profit forecast, blaming a stronger U.S. dollar for $460 million in revenue. The software giant on Tuesday said currency impacts during the period were even sharper than it had predicted. The war in Ukraine prompted the company to curtail Russia, leading to an accounting charge of $126 million. In addition, hardware production shutdowns in China and a deteriorating PC market hurt sales of Windows operating system software to PC makers. Microsoft also recorded $113 million in severance pay in the recent period. Earlier this month, Microsoft said it was cutting less than 1 percent of its 180,000-person workforce, affecting groups such as consulting and customer solutions, but said it plans to finish the current fiscal year with increased headcount. The company has also cut several open jobs and slowed hiring, including in units that make Azure, Windows, Office and security software. Those hiring restrictions will continue for the foreseeable future, the company said last week. Microsoft’s total revenue from cloud products, which include Azure and web-based versions of Office software, rose 28 percent to $25 billion, the company said in slides posted on its website. Global PC shipments fell more than 15% in the quarter, according to IDC, although they remain above pre-pandemic levels. Microsoft was able to post higher PC software revenue by shipping more enterprise editions of its programs at higher prices. On the call, Microsoft executives said they expect weakness in the PC and ad markets to continue. (Updates with analyst commentary in third paragraph, CEO in fifth paragraph.) Most Read by Bloomberg Businessweek ©2022 Bloomberg LP
