Microsoft yesterday announced the quarterly results for the quarter ended September 30, 2022. Microsoft reported revenue of $50.1 billion and operating income of $21.5 billion. Both the numbers were better than analysts’ expectations. However, Microsoft stock is down about 7% today due to the guidance provided by Microsoft during the earnings call. Investors were worried about Azure business since Microsoft expects Azure revenue growth to be sequentially lower by roughly 5 points on a constant currency basis in the next quarter. Find the full guidance details provided by Microsoft.
- In Productivity and Business Processes, we expect revenue to grow between 11 and 13 percent in constant currency or $16.6 to $16.9 billion US dollars.
- In Office Commercial, revenue growth will again be driven by Office 365 with seat growth across customer segments and ARPU growth thru E5. We expect Office 365 revenue growth to be similar to last quarter on a constant currency basis. In our on-premises business we expect revenue to decline in the low-to-mid 30s.
- In Office consumer, we expect revenue to decline low to mid-single digits, as Microsoft 365 subscription growth will be more than offset by unfavorable FX impact.
- For LinkedIn, we expect continued strong engagement on the platform although results will be impacted by a slowdown in advertising spend and hiring resulting in mid-to- high-single-digits revenue growth or low to mid-teens growth in constant currency.
- And in Dynamics, we expect revenue growth in the low-double-digits or the low 20s in constant currency driven by continued share gains in Dynamics 365.
- For Intelligent Cloud we expect revenue to grow between 22 and 24 percent in constant currency or $21.25 to $21.55 billion US dollars.
- Revenue will continue to be driven by Azure which, as a reminder, can have quarterly variability primarily from our per-user business and from in-period revenue recognition depending on the mix of contracts.
- We expect Azure revenue growth to be sequentially lower by roughly 5 points on a constant currency basis. Azure revenue will continue to be driven by strong growth in consumption with some impact from the Q1 trends noted earlier. And our per-user business should continue to benefit from Microsoft 365 suite momentum, though we expect moderation in growth rates given the size of the installed base.
- In our on-premises server business, we expect revenue to decline low-single digits as demand for our hybrid solutions including strong annuity purchasing from the SQL Server 2022 launch, will be more than offset by unfavorable FX impact.
- And in Enterprise Services, we expect revenue growth to be in the low-single digits driven by Enterprise Support.
- In More Personal Computing, we expect revenue of $14.5 to $14.9 billion US dollars.
- In Windows OEM we expect revenue to decline in the high 30s. Excluding the impact from the Windows 11 revenue deferral last year, revenue would decline mid-30s reflecting both PC market demand and a strong prior year comparable, particularly in the commercial segment.
- In Devices, revenue should decline approximately 30 percent, again roughly in line with the PC market.
- In Windows commercial products and cloud services, customer demand for Microsoft 365 and our advanced security solutions should drive growth in the mid-single digits or low double digits in constant currency.
- Search and news advertising ex-TAC should grow in the low-to-mid teens, roughly 6 points faster than overall Search and news advertising revenue, driven by growing first party revenue and the inclusion of Xandr.
- And in Gaming, we expect revenue to decline in the low-to-mid teens against a strong prior year comparable that included several first-party title launches, partially offset by growth in Xbox Game Pass subscribers. We expect Xbox content and services revenue to decline in the low-to-mid-teens.
Yesterday, Alphabet (Google’s parent company) also reported quarterly results. Google’s third quarter revenues were $69.1 billion, up 6% versus last
year or up 11% on a constant currency basis.
Ruth Porat, CFO Alphabet and Google, said the following during the earnings call:
“In terms of outlook by segment, for Google Services: the revenue growth rates we delivered in 2021 in our advertising businesses benefited from lapping the COVID-related weakness in 2020. Obviously, we will not have that tailwind for the rest of this year. As discussed in prior calls, the largest impact from COVID on our results was in the second quarter of 2020, which means that in the second quarter of 2022 we will face a particularly tough comp as we lap the recovery we had in the second quarter of 2021. Additionally, the second quarter results will continue to reflect that we suspended the vast majority of our commercial activities in Russia.”
Along with Microsoft and Google, even Amazon stock was down 4% since the market is expecting them to post less than expected numbers.