Despite Microsoft’s Success, Cloud Growth Falls Short

(CTN News) – During extended trading on Tuesday, Microsoft’s shares fell by 2% after the company reported weaker cloud revenue than expected.

Analysts had expected $2.30 per share, but Refinitiv reported $2.35 per share.

Refinitiv reported $50.12 billion in revenue vs. the $49.61 billion expected by analysts.

According to a statement, total revenue grew 11% year over year. At $17.56 billion, net income fell by 14%.

Microsoft saw a tax benefit of $3.3 billion in the year-ago quarter. The company’s 69.2% gross margin trailed StreetAccount’s 69.8% consensus estimate.

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 Street Account.

Microsoft said Azure revenue grew 35% in the quarter, compared with 40% in the previous quarter. Analysts polled by CNBC had expected 36.4% growth, while analysts surveyed by Street Account had been looking for 36.9% Azure growth.

Including Microsoft’s 365 productivity software subscriptions, LinkedIn and Dynamics (the bundle is currently being rebranded from Office 365), the Productivity and Business Processes segment generated $16.47 billion in revenue, a 9% increase above StreetAccount’s consensus of $16.13 billion.

More Personal Computing revenue came in at $13.33 billion, slightly from the $13.12 billion StreetAccount consensus. Windows, Xbox, Surface, and Bing ads make up the segment.

For the first time, Microsoft’s Cloud revenue, which includes Azure, commercial Office 365 subscriptions, LinkedIn and Dynamics 365, exceeded 50% of overall company revenue in the quarter.

The company announced plans to slow down its pace of hiring and started rolling out the first annual update to its Windows 11 operating system. The Teams communication app also has Viva Engage, a video-sharing portal.

“We’re focused on helping our customers do more with less while investing in secular growth areas and managing our costs disciplined,” said CEO Satya Nadella.

Microsoft adjusted the way it reports revenue in the quarter. HoloLens revenue will go into the More Personal Computing segment instead of the Intelligent Cloud. According to Microsoft, the change affected its forecast by $100 million.

Despite the after-hours move, Microsoft’s shares are down about 26% this year, while the S&P 500 is down 19%.

The executives will discuss the results and give guidance on a conference call at 5:30 ET.

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