Microsoft Expected to Post Slowest Quarterly Revenue Growth in 5 Years; Doubts on Annual Outlook, Analysts Say

Microsoft's Q1 revenue is expected to rise by 9.5 percent, the first sub-10 percent growth since the Q3 of financial year 2017, as per data from Refinitiv.

By Reuters | Updated: 25 October 2022 18:29 IST

Microsoft Expected to Post Slowest Quarterly Revenue Growth in 5 Years; Doubts on Annual Outlook, Analysts Say

Windows licenses form about 12 percent to 13 percent of Microsoft's revenue

Highlights

Microsoft earns more than 50 percent of its revenue outside the US
A spike in inflation has fanned worries of a global economic slowdown
PC shipments declined 19.5 percent in the third quarter this year

Microsoft is set to post its slowest quarterly revenue growth in over five years on Tuesday, with some analysts casting doubts whether the company can maintain its annual outlook in the face of a PC market slowdown and a strong dollar.

A spike in inflation this year has fanned worries of a global economic slowdown and forced consumers and businesses to pull spending on computers and laptops, sapping sales of some of Microsoft's key products including Windows and the Office suite.

Adding to the squeeze, the dollar has climbed more than 17 percent, weighing on the earnings of companies with big global operations. Microsoft earns more than 50 percent of its revenue outside the United States.

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"All eyes will be on Microsoft's ability to maintain FY23 guidance for reported double-digit revenue growth, which we believe is at risk," Guggenheim analysts said last week.

UBS has said the stock seems to have largely priced in a potential walk back on the forecast.

At least 15 brokerages have lowered their price targets on the software giant in October, and the company's shares have declined by more than a quarter in 2022.

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PC shipments declined 19.5 percent in the third quarter this year, according to data from research firm Gartner.

Windows licenses form about 12 percent to 13 percent of Microsoft's revenue and the PC market downturn is expected to dent its sales by 100 basis points, Morningstar senior analyst Dan Romanoff said.

The blow is expected to be slightly offset by Microsoft's cloud services unit Azure, which is set to grow 20 percent in the first quarter, according to Refinitiv data.

"Our CIO survey work suggests that enterprise IT usage of Azure is likely to gain share vs. Amazon AWS," JP Morgan said in a recent note.

But signs of a slowdown in cloud adoption have started emerging. An analysis by Piper Sandler showed total revenues at the top 100 software firms are estimated to grow 22 percent in 2022 and 20 percent in 2023, down from 33 percent in 2021.

Software firms are the biggest customers of cloud platforms and their business growth is taken as proxy for the cloud services sector.

Fundamentals

Microsoft's first-quarter revenue is expected to rise 9.5 percent to $49.61 billion (roughly Rs. 4,10,722 crore), the first sub-10 perceny growth since the third quarter of fiscal 2017 - Refinitiv

Earnings per share is estimated at $2.30 (roughly Rs. 150)

Wall street sentiments

48 of the 52 analysts covering the stock rate it "buy" or higher and four rate it "hold"

The median price target is $315 (roughly Rs. 26,000), down from $336 (roughly Rs. 27,800) at the start of 2022

Microsoft trading at $246.64 (roughly Rs. 20,300) on Monday

Apple launched the iPad Pro (2022) and the iPad (2022) alongside the new Apple TV this week. We discuss the company's latest products, along with our review of the iPhone 14 Pro on Orbital, the Gadgets 360 podcast. Orbital is available on Spotify, Gaana, JioSaavn, Google Podcasts, Apple Podcasts, Amazon Music and wherever you get your podcasts.

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