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Shares of Microsoft (NASDAQ:MSFT) are trading nearly 6% down in early Wednesday trading after the tech titan offered soft guidance for its fiscal second quarter while also lowering the 2023 revenue outlook.
Microsoft reported an EPS of $2.35 to top the analyst estimate of $2.32. Revenue jumped 11% YoY to $50.1 billion, again higher than the consensus of $49.86 billion. This marks the weakest quarterly sales growth in five years for Microsoft.
Microsoft Azure grew 35% to generate $20.33 billion in sales, while analysts were looking for a 36% growth rate. Microsoft’s Productivity and Business Processes and Personal Computing units topped analyst views.
“In a world facing increasing headwinds, digital technology is the ultimate tailwind. 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,” said Satya Nadella, chairman and CEO of Microsoft.
On the earnings call, Microsoft guided to $52.85 billion (at the midpoint) in FQ2 revenues, suggesting a 2% YoY growth. Analysts were looking for revenue of $56.05 billion. Azure growth should slow down to 37% in constant currency, again lower than the 39.4% consensus.
Goldman Sachs analysts lowered FY23 estimates to reflect results and guidance. The new price target on MSFT shares is $315, down from $330 a share.
“While we revise down our FY23 estimates (to reflect headwinds in MPC revenue, Azure), we note that a majority of this stepdown pertains to cyclical parts of the business that do not cater to the strategic vision of the company and our long-term thesis… Looking beyond near-term dynamics, we remain constructive as we see the company well positioned to continue to win deals and expand its wallet share within its existing customer-base, even in a slower growth environment,” they wrote in a note.
Stifel analysts cut the price target to $290 from $300 per share but remain positive on shares.
“Not surprisingly, the uneven worldwide economy continues to buffet portions of MSFT’s business as Azure growth modestly fell short of expectations as customers continued to optimize usage for the second consecutive quarter, PC demand has been meaningfully recalibrated post the pandemic and advertising spend lags as clients move to reduce marketing budgets,” they wrote to clients.
