Microsoft drops 6% after revealing weak guidance on its earnings call

Published

3 years ago

October 25, 2022

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Microsoft beats on top and bottom lines for third quarter earnings

Microsoft shares fell about 7% in extended trading on Tuesday after the company reported softer cloud revenue than expected in its fiscal first quarter and gave weak quarterly guidance.

Here’s how the company did:

Earnings: $2.35 per share, vs. $2.30 per share as expected by analysts, according to Refinitiv.
Revenue: $50.12 billion, vs. $49.61 billion as expected by analysts, according to Refinitiv.

With respect to guidance, Microsoft sees $52.35 billion to $53.35 billion in revenue for the fiscal second quarter, which implies 2% growth at the middle of the range. Analysts polled by Refinitiv had been looking for revenue of $56.05 billion. Microsoft’s implied operating margin for the fiscal second quarter was about 40%, narrower than the 42% consensus among analysts polled by StreetAccount.

In the fiscal first quarter, total revenue grew 11% year over year, according to a statement.

Cyclical trends are affecting Microsoft’s consumer business, CEO Satya Nadella said on a conference call with analysts.

Net income fell by 14% to $17.56 billion. Microsoft had a $3.3 billion tax benefit in the year-ago quarter. But the company lengthened the useful lives of servers and networking equipment to six years from four years, resulting in an $859 million bump to net income in the fiscal first quarter. Still, the company’s gross margin, at 69.2%, trailed the StreetAccount consensus estimate of 69.8%.

Microsoft’s Intelligent Cloud business segment, which includes the Azure public cloud, as well as Windows Server, SQL Server, Nuance and Enterprise Services, generated $20.33 billion in quarterly revenue. That’s up 20% and slightly less than the $20.36 billion consensus among analysts polled by StreetAccount.

Azure revenue grew 35% in the quarter, Microsoft said, compared with 40% growth in the previous quarter. Analysts polled by CNBC had expected 36.4% growth, while analysts surveyed by StreetAccount had been looking for 36.9% Azure growth. Growth in Azure consumption continued to moderate, and higher energy costs in the quarter hurt the gross margin of Azure, Amy Hood, the company’s finance chief, said on the call.

For the fiscal second quarter, Hood said Azure growth should fall sequentially by about 5% in constant currency, to about 37%. She did not provide a growth rate in dollars, and the company doesn’t disclose Azure revenue in dollars. Analysts polled by StreetAccount had expected 39.4% Azure growth in constant currency.

The Productivity and Business Processes segment that contains Microsoft 365 productivity software subscriptions (the company is in the midst of rebranding the bundle from Office 365), LinkedIn and Dynamics, posted $16.47 billion in revenue, up 9% and above the $16.13 billion StreetAccount consensus.

A majority of the Microsoft 365 bookings during the quarter came from E5, a higher-priced bundle, Hood said.

Revenue from the More Personal Computing segment totaled $13.33 billion, down slightly and higher than the $13.12 billion StreetAccount consensus. The segment includes Windows, as well as Xbox, Surface and advertising from the Bing search engine.

Revenue from sales of Windows licenses to device makers dropped 15% year over year, steeper than any quarter since 2015 and worse than the outlook Hood gave in July for a decline in the high single digits. The company said the PC market continued to deteriorate during the quarter.

That result wasn’t a complete surprise. Technology industry researcher Gartner said earlier this month that PC shipments in the quarter fell 19.5% year over year, and chipmaker AMD earlier this month issued lower-than-expected preliminary quarterly results tied to a “weaker than expected PC market and significant inventory correction actions across the PC supply chain.”

Hood said on Tuesday that the materially weaker demand for PCs seen in September will continue to affect its consumer business. She called for a percentage decline in the high 30s for Windows revenue from device makers in the fiscal second quarter.

For the first time, revenue in the quarter from the Microsoft Cloud metric, encompassing Azure, commercial Office 365 subscriptions, commercial parts of LinkedIn and Dynamics 365, exceeded 50% of overall company revenue.

During the quarter, Microsoft started rolling out the first annual update to its Windows 11 operating system since releasing the original version last year, and the company announced plans to slow down its pace of hiring said it was cutting less than 1% of employees. Microsoft also introduced Viva Engage, a portal in the Teams communication app where co-workers can share video stories.

“In this environment, we’re focused on helping our customers do more with less, while investing in secular growth areas and managing our cost structure in a disciplined way,” Nadella said in the company’s earnings statement.

Operating expense growth should moderate materially during the 2023 fiscal year as the company focuses on improving employee productivity, Hood said.

The quarterly results include small adjustments in the way that Microsoft reports revenue. Revenue from HoloLens augmented-reality devices will appear in the More Personal Computing segment instead of the Intelligent Cloud segment. Microsoft adjusted its forecast for the segments by about $100 million in connection with the change.

Notwithstanding the after-hours move, Microsoft shares have fallen about 26% so far this year, while the S&P 500 stock index is down 19% over the same period.

Technology

CNBC Daily Open: U.S. stocks retreat from highs as Broadcom leads tech sell-off

Published

3 hours ago

December 15, 2025

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CNBC Daily Open: U.S. stocks retreat from highs as Broadcom leads tech sell-off

Signage at the Broadcom Inc. headquarters in San Jose, California, U.S., on Monday, June 2, 2025.

David Paul Morris | Bloomberg | Getty Images

The sell-off in artificial intelligence stocks continued unabated Friday stateside. Broadcom shares tumbled more than 11% as investors grew concerned over lower margins and uncertain deals. Names such as Nvidia, Advanced Micro Devices and Oracle fell in sympathy, which caused major U.S. indexes to close lower.

It was a motif patterning the week. Even though the Dow Jones Industrial Average rose 1.1% week on week on the back of outperformance by financial stocks, tech names dragged down the S&P 500 and the Nasdaq Composite, which fell 0.6% and 1.6% respectively for the week.

That said, investors could have just been jittery amid the narrative of an apparent AI bubble, and were spooked by any sign of bad news. After all, Broadcom’s earnings — as well as its guidance for the current quarter — breezed past expectations.

“Frankly we aren’t sure what else one could desire as the company’s AI story continues to not only overdeliver but is doing it at an accelerating rate,” Bernstein analyst Stacy Rasgon, who has a “buy” rating on Broadcom, wrote in a Friday note.

Future prospects also look rosy, according to UBS. “We expect high profitability and the accelerating impact of the AI, power and resources, and longevity themes to drive 2026 performance,” said strategist Sagar Khandelwal.

But in the near term, investors may still be flighty, unless something concretely reassuring, such as Oracle achieving positive cash flow, reassures them the snapping sound is just a twig in the forest.

What you need to know today

U.S. stocks dragged down by AI names. Major indexes fell Friday, a day after they hit record highs. Asia-Pacific markets traded lower Monday. South Korea’s Kospi retreated roughly 1.5% as of 2:45 p.m. Singapore time (1:45 a.m. ET), leading losses in the region.

China’s economic slowdown deepens. Even though the country’s retail sales and industrial production grew year on year in November, their increase missed forecasts and slowed from the previous month. Investment in fixed assets in the January-to-November period contracted from a year earlier.

The end of the ‘Berkshire way’? Several aspects of Berkshire Hathaway’s leadership transition are signaling that the conglomerate is drifting away from the famously decentralized “Berkshire way,” CNBC’s Alex Crippen writes.

Hong Kong court finds Jimmy Lai guilty. The 78-year-old pro-democracy activist and media baron was ruled guilty of sedition and collusion with foreign countries by a Hong Kong court on Monday. The results might unsettle foreign investors, analysts say.

[PRO] China’s food security strategy. The spat between Beijing and Washington over soybean purchases has highlighted the evolution of China’s domestic agriculture industry. Goldman Sachs thinks this is the best way to play the sector.

And finally…

Copper prices have soared this year, hitting multiple record highs, fueled by supply disruptions and fears over U.S. tariffs.

Imagebroker/sunny Celeste | Imagebroker | Getty Images

Copper could hit ‘stratospheric new highs’ as hoarding of the metal in U.S. continues

Copper prices have hit multiple record highs this year, fueled by supply disruptions and as fears over U.S. tariffs have led to a surge in demand. The rally is set to continue into 2026.

Citi analysts expect prices of the red metal to skyrocket on the back of stronger demand led by the energy transition and artificial intelligence sectors. Electrification, grid expansion and data-center build-outs require large amounts of the metal for wiring, power transmission and cooling infrastructure.

— Lee Ying Shan

Technology

CNBC Daily Open: Investors sell off tech despite steady Broadcom numbers

Published

9 hours ago

December 15, 2025

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CNBC Daily Open: Investors sell off tech despite steady Broadcom numbers

Signage at the Broadcom Inc. headquarters in San Jose, California, U.S., on Monday, June 2, 2025.

David Paul Morris | Bloomberg | Getty Images

What you need to know today

U.S. stocks dragged down by AI names. Major indexes fell Friday, a day after they hit record highs. The pan-European Stoxx 600 retreated almost 0.5%. Separately, the U.K. economy unexpectedly shrank 0.1% in the three months to October.

Oracle will finish data centers on time. The company issued its response to a Bloomberg report, which cited unnamed people, that Oracle will complete data centers for OpenAI in 2028 rather than 2027. “There have been no delays,” Oracle said.

Coinbase to have an in-house prediction market. It will be powered be Kalshi, a source close to the matter told CNBC, and is a play to expand asset classes available on the cryptocurrency exchange.

[PRO] China’s food security strategy. The spate between Beijing and Washington over soybean purchases has highlighted the evolution of China’s domestic agriculture industry. Goldman Sachs thinks this is the best way to play the sector.

And finally…

A bear statue stands outside the Frankfurt Stock Exchange, operated by Deutsche Boerse AG, in Frankfurt, Germany, on Friday, March 13, 2020. Top European CEOs are fearing a euro zone recession as a confluence of economic shocks continues to threaten the outlook for the bloc.

Alex Kraus | Bloomberg | Getty Images

Global week ahead: Europe under fire

U.S. President Donald Trump’s verdict on Europe: a “decaying” group of nations led by “weak” people. His criticism in a recent Politico interview adds to a tough period for the bloc, with challenges on multiple fronts testing European leaders in the final weeks of the year.

This week looks set to be critical, with a high-stakes summit in Brussels and the European Central Bank’s final policy meeting of the year. Key topics for this week include defrosting frozen Russian assets for Ukraine aid; EU vs. U.S. in trade and tech, and updated economic figures at the ECB meeting.

— Leonie Kidd