Microsoft Stock: Azure Growth Proves Resilient

Microsoft’s Financials:

Microsoft’s revenue grew by 12% YoY to $51.9 billion for the Q4 FY2022 ending in June, and for the FY2022 ending in June, it grew by 18% YoY to $198.3 billion.

Microsoft’s Revenue Segments:

The company reports its revenues in three segments.

Productivity and Business Processes Segment:

The Productivity and Business Processes segment revenue grew by 13% YoY to $16.6 billion, which includes Office Commercial, Office Consumer, Dynamics, and LinkedIn. LinkedIN came in at 24% growth yet this was lower than the management’s expectation due to a slowdown in advertising revenue. According to management, Teams continues to “take share across every category” and is “seeing higher usage intensity.”

Intelligent Cloud Segment:

The Intelligent Cloud segment revenue grew by 20% YoY to $20.9 billion. The management’s guidance was $21.05 billion, the negative impact from the strong dollar led to the slight miss in this segment. The server products and cloud services revenue grew by 22%, helped by Azure & other cloud services growth of 40%. On a constant currency basis, Azure grew by 46% and the management is guiding for a growth of 43% (constant currency) in the next quarter.

More Personal Computing Segment:

The More Personal Computing revenue grew by 2% YoY to $14.4 billion. It was below the management’s guidance of $14.69 billion. The slowdown in this segment was expected since there is weakness in the PC business. Tracking the recent IDC preliminary results suggest that global traditional PC shipments fell 15% in Q2 2022, and the company results were good taking into consideration the macro numbers. Amy Hood said in the earnings call, “Despite the deteriorating PC market, we saw share gains again this quarter and volumes remained above pre-pandemic levels.”

Microsoft Flexes Its Muscle on Margins

Microsoft flexed its muscle on margins during a time when many companies are stumbling on the bottom line. This was especially evidenced by Microsoft announcing an accounting change to the life of its servers to offset FX headwinds. We detail this in the section below.

FX Headwinds Expected to Ease in 2023

The management expects Q1 FY2023 revenue to grow 10% YoY at the mid-point of the guidance to $49.75 billion. They expect FX headwinds to be higher in the first half of the fiscal year when compared to the second half. For the full year, they expect double-digit revenue and operating income growth. The management expects to complete the acquisition of Activision Blizzard by the end of this fiscal-year and the guidance excludes the impact from the acquisition.

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Beth Kindig

Beth Kindig

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CEO and Lead Tech Analyst for the I/O Fund with cumulative audited results of 141%, beating Ark and other leading active tech funds over four audit periods in 2