- Shares of Microsoft closed down 7% Wednesday, a day after the company released its fiscal first-quarter earnings and offered weak quarterly guidance.
- CEO Satya Nadella said on a conference call with analysts that cyclical trends are affecting Microsoft's consumer business.
Microsoft surpassed expectations on the top and bottom lines, but the stock was pressured by weak guidance and cloud revenue that missed expectations.
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, according to a company statement. That's up 20% but slightly less than the $20.36 billion consensus among analysts polled by StreetAccount.
As for guidance, Microsoft expects to see $52.35 billion to $53.35 billion in revenue for the fiscal second quarter, which implies 2% growth at the middle of the range. Analysts polled by Refinitiv had been looking for revenue of $56.05 billion.
CEO Satya Nadella said on a conference call with analysts that cyclical trends are affecting Microsoft's consumer business. CFO Amy Hood said weak demand for PCs in September will continue to hit Microsoft's consumer segment and said to expect a percentage decline in the high 30s for Windows revenue from devices makers in the fiscal second quarter.
Goldman Sachs analysts were not discouraged by the weaker, cyclical segments, and reiterated their buy rating on the stock. They said there's potential for those segments to rebound and that companies are more likely to offer conservative guidance when faced with a challenging macroeconomic environment.
They believe there is potential for revenue reacceleration next year.
"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 Tuesday.
Analysts at Morgan Stanley also remain confident in Microsoft's growth potential despite its weak cyclical areas and guidance.
The strength of the company's positioning for core secular growth trends "remains evident," they said.
"Bottom line, while heavier cyclical weights brings down our FY23 EPS estimates, we remain firmly convicted in the longer-term secular growth story at Microsoft," they said in a note Wednesday.
Barclays analysts said Microsoft's quarterly outlook was a "negative surprise" for investors, and that macroeconomic challenges are slowing migration to the cloud.
However, they said in a note Wednesday that while "shares will likely react negatively in the short term," the company's management is still guiding for revenue and profit that "should ensure relative outperformance."
Microsoft shares have fallen about 25% so far this year, while the S&P 500 stock index is down 19% over the same period.
— CNBC's Jordan Novet and Michael Bloom contributed to this report.