Microsoft drops 6% after revealing weak guidance on its earnings call
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
Amazon was questioned by House China committee over ‘dangerous and unwise’ TikTok partnership
Amazon logo on a brick building exterior, San Francisco, California, August 20, 2024.
Smith Collection | Gado | Archive Photos | Getty Images
Amazon representatives met with the House China committee in recent months to discuss lawmaker concerns over the company’s partnership with TikTok, CNBC confirmed.
A spokesperson for the House Select Committee on the Chinese Communist Party confirmed the meeting, which centered on a shopping deal between Amazon and TikTok announced in August. The agreement allows users of TikTok, owned by China’s ByteDance, to link their account with Amazon and make purchases from the site without leaving TikTok.
“The Select Committee conveyed to Amazon that it is dangerous and unwise for Amazon to partner with TikTok given the grave national security threat the app poses,” the spokesperson said. The parties met in September, according to Bloomberg, which first reported the news.
Representatives from Amazon and TikTok did not immediately respond to CNBC’s request for comment.
TikTok’s future viability in the U.S. is uncertain. In April, President Joe Biden signed a law that requires ByteDance to sell TikTok by Jan. 19. If TikTok fails to cut ties with its parent company, app stores and internet hosting services would be prohibited from offering the app.
President-elect Donald Trump could rescue TikTok from a potential U.S. ban. He promised on the campaign trail that he would “save” TikTok, and said in a March interview with CNBC’s “Squawk Box” that “there’s a lot of good and there’s a lot of bad” with the app.
In his first administration, Trump had tried to implement a TikTok ban. He changed his stance around the time he met with billionaire Jeff Yass. The Republican megadonor’s trading firm, Susquehanna International Group, owns a 15% stake in ByteDance, while Yass has a 7% stake in the company, NBC and CNBC reported in March.
— CNBC’s Jonathan Vanian contributed to this report.
Technology
Amazon launches fixed pricing for treatment of conditions such as hair loss. Hims & Hers stock drops 15%
Former U.S. Army intelligence analyst Chelsea Manning says censorship is still “a dominant threat,” advocating for a more decentralized internet to help better protect individuals online.
Her comments come amid ongoing tension linked to online safety rules, with some tech executives recently seeking to push back over content moderation concerns.
Speaking to CNBC’s Karen Tso at the Web Summit tech conference in Lisbon, Portugal, on Wednesday, Manning said that one way to ensure online privacy could be “decentralized identification,” which gives individuals the ability to control their own data.
“Censorship is a dominant threat. I think that it is a question of who’s doing the censoring, and what the purpose is — and also censorship in the 21st century is more about whether or not you’re boosted through like an algorithm, and how the fine-tuning of that seems to work,” Manning said.
“I think that social media and the monopolies of social media have sort of gotten us used to the fact that certain things that drive engagement will be attractive,” she added.
“One of the ways that we can sort of countervail that is to go back to the more decentralized and distribute the internet of the early ’90s, but make that available to more people.”
Nym Technologies Chief Security Officer Chelsea Manning at a press conference held with Nym Technologies CEO Harry Halpin in the Media Village to present NymVPN during the second day of Web Summit on November 13, 2024 in Lisbon, Portugal.
Horacio Villalobos | Getty Images News | Getty Images
Asked how tech companies could make money in such a scenario, Manning said there would have to be “a better social contract” put in place to determine how information is shared and accessed.
“One of the things about distributed or decentralized identification is that through encryption you’re able to sort of check the box yourself, instead of having to depend on the company to provide you with a check box or an accept here, you’re making that decision from a technical perspective,” Manning said.
‘No longer secrecy versus transparency’
Manning, who works as a security consultant at Nym Technologies, a company that specializes in online privacy and security, was convicted of espionage and other charges at a court-martial in 2013 for leaking a trove of secret military files to online media publisher WikiLeaks.
She was sentenced to 35 years in prison, but was later released in 2017, when former U.S. President Barack Obama commuted her sentence.
Asked to what extent the environment has changed for whistleblowers today, Manning said, “We’re at an interesting time because information is everywhere. We have more information than ever.”
She added, “Countries and governments no longer seem to invest the same amount of time and effort in hiding information and keeping secrets. What countries seem to be doing now is they seem to be spending more time and energy spreading misinformation and disinformation.”
Manning said the challenge for whistleblowers now is to sort through the information to understand what is verifiable and authentic.
“It’s no longer secrecy versus transparency,” she added.
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