Microsoft Stock Slumps As Muted Outlook, Strong Dollar Hit, Clouds Q1 Earnings Beat

“The stronger US dollar decreased total company revenue by five points,” CFO Amy Hood said, adding that “our outlook has many of the trends we saw at the end of Q1, continue into Q2.”

Microsoft  (MSFT) – Get Microsoft Corporation Report shares traded firmly lower Wednesday after the tech giant posted weakening growth rates in its key cloud computing division and forecast disappointing revenue gains over the final months of the year.

Microsoft said revenues for Azure, its flagship cloud division, rose 35% from last year, slowing notably from its prior quarter gains as companies pulled back on investment spending. That rate will slow further into the three months ending in December, Microsoft’s fiscal second quarter, even after stripping away the impact of the stronger U.S. dollar.

Microsoft earned just over half of its $168.1 billion in 2021 revenues from overseas markets, according to the group’s latest annual report, with international growth outpacing domestic by around 3%, making gains in the U.S. dollar increasingly challenging when it comes time to repatriate.

The group also forecast lower-than-expected revenues from its umbrella ‘intelligent cloud’ division, which it sees between $21.25 billion and $21.55 billion, as well as its personal computing business, with a forecast range of between $14.5 billion and $14.9 billion.

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“Our outlook has many of the trends we saw at the end of Q1, continue into Q2. In our consumer business, materially weaker PC demand from September will continue, and impact both Windows OEM and Surface device results even as the Windows installed base and usage grows,” CFO Amy Hood told investors on a conference call late Tuesday. “In our consumer business, PC market demand further deteriorated in September, which impacted our Windows OEM and Surface businesses. Reductions in customer advertising spend, which also weakened later in the quarter, impacted search and news advertising and LinkedIn Marketing Solutions.”

“With the stronger US dollar, FX decreased total company revenue by five points, and at the segment level, FX decreased productivity and business processes and intelligent cloud revenue growth by six points and more personal computing revenue growth by three points,” she added. 

Microsoft shares were marked 6.3% lower in pre-market trading to indicate an opening bell price of $234.95 each, a move that would extend the stock’s six-month decline to around 13.1%.

For the three months ending in September, overall group revenues rose 10.5% to $50.1 billion, just ahead of Street forecasts, while its bottom fell 15% to $17.3 billion. 

Productivity and business division revenues rose 9% to $16.5 billion, Microsoft said, while Intelligent Cloud revenues were up 24% to $25.7 billion. More Personal Computing revenues rose only 3% to $13.3 billion. 

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