Microsoft trapped by ‘macroeconomic storm’ – here’s what analysts say

Microsoft trapped by ‘macroeconomic storm’ – here’s what analysts say

Even the mighty Microsoft is not immune to it economic slowdown continues to destroy companies large and small.

Shares of Microsoft fell about 6% in premarket trading on Wednesday as the tech giant warned about slowing growth in its bread-and-butter cloud business. The company also posted a weak quarter in PCs as consumers hold back on big-ticket purchases amid economic uncertainty.

On the earnings call, Microsoft CFO Amy Hood noticed that “the macroeconomic environment became increasingly complicated” as the last quarter progressed.

Microsoft had the most visited ticker page on Yahoo Finance in advance, highlighting investor concerns over the company’s relatively weak quarterly performance.

Here’s what Wall Street analysts are saying about Microsoft’s mixed quarter:

Jefferies’ Brent Thill

“This macroeconomic storm even captures one of the best stories in tech, with 1) Azure’s 1 percentage point [sales] miss and guidance for a 5 percentage point slowdown, 2) mild 16% YoY growth in FX bookings (vs. F4Q 35%), 3) deterioration in PC and 4) slowdown in ad spend. Bright spots included sustained revenue growth of 10%+ in constant currency, FY23 guidance and O365 Comm. resilience. Microsoft indicated that FY23 operating margin is down 1 percentage point year-over-year, but we believe it has the leverage to stabilize EPS and reach $10.60+ in FY24, helping to achieve a price target of $270 based on 25x [PE multiple] EPS.”

People look inside the Microsoft Pop Up Store window in Times Square on October 29, 2012. AFP PHOTO / TIMOTHY A. CLARY

People look inside the Microsoft Pop Up Store window in Times Square on October 29, 2012. AFP PHOTO / TIMOTHY A. CLARY

Tyler Radke of Citi

“Despite the upper/lower numbers meeting, [fiscal] The first quarter was not the cleanest quarter for Microsoft. The results showed another slight miss for Azure, with the outlook implying a steeper slowdown path on cloud optimization. Margins also faced fresh headwinds from weaker PC mix winds and higher electricity costs hitting Azure. Despite efforts to offset this (slower hiring), margins are still down ~100 basis points for the full year. While disappointing, nothing here looks structurally broken and we see Microsoft showing resilience, growing revenue and [operating] revenue double digits… amid a challenging year of heavy comps, weaker macro, inflation/energy costs and slowing down of IT budgets. We think Microsoft can continue to leverage its superior competitive positions and customer relationships in some of the largest software markets to continue to generate strong returns relative to its megacap tech/S&P 500 peers and maintain our buy despite declining revenue numbers.”

Kirk Materne of Evercore ISI

“While we understand that any ‘wobble’ in Azure will be amplified in this market, it’s worth remembering that Azure is still showing rapid growth at scale, taking share of the massive cloud market, and the weakness is largely due to slower spending in the small business market and slowing EMS – this is not a competitive (or mostly business) issue. In essence, we don’t believe the Azure results or guidance should be seen as a ‘thesis breaker’ as far as the commercial business is concerned – it’s still expected to grow ~20% in constant currency this year. Furthermore, combined with another strong quarter from the O365 commercial business (+17%), we believe the enterprise side of the business remains solid – despite the macro – heading into CY 23. Finally, while Microsoft pulled [operating] margin target slightly (100 basis points) given PC weakness and higher energy costs, we believe there is little doubt that Microsoft will manage headcount and investments to preserve EPS and cash flow. As such, we believe our revised estimates have room for upside on the cost side.”

Brian Sozzi is the editor-in-chief and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and further LinkedIn.

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