To The Moon

On Tuesday, January 24, after the close of the U.S. stock market, U.S. technology giant $Microsoft(MSFT)$ reported results for the second quarter of fiscal year 2023 (fourth quarter of 2022).

Thanks to better-than-expected profits, Microsoft shares rose more than 5% after the bell, but after a pessimistic conference call with executives such as Nadella, the market began to give up the resistance and the gains drew in full and are now down more than 1% to $239.60 per share.

Microsoft recorded revenue of $52.747 billion for the quarter ended Dec. 31, 2022, below Wall Street analysts' expectations of $52.94 billion and up 2 percent year-over-year, the slowest growth rate since 2016, according to the earnings specifics.

In addition, the company recorded operating profit of $20.399 billion for the quarter, down 8 percent year-over-year; profit fell 12 percent to $16.425 billion from $18.77 billion a year ago; and adjusted earnings per share for the quarter were $2.32, above market expectations of $2.29.

1. Most businesses are slowing down and are heavily impacted by the economy

By business segment, Microsoft's Productivity and Business Processes business delivered revenue of $17.0 billion, up 7 percent year-over-year. revenue from Office Business Products and Cloud Services grew 7 percent, down from 11 percent in the prior-year quarter; revenue from Office Consumer Products and Cloud Services declined 2 percent, with Microsoft 365 consumer users increasing to 63.2 million; revenue from Dynamics Products and Cloud Services grew 13 percent, down from 24 percent in the prior-year quarter. Dynamics products and cloud services revenue grew 13 percent, down from 24 percent in the prior year quarter; LinkedIn revenue grew 10 percent.

Microsoft's Intelligent Cloud segment generated $21.5 billion in revenue, up from the market's previous forecast of $21.44 billion and up 18 percent year-over-year, with revenue from server products and cloud services up 20 percent, down from 22 percent in the previous quarter.

Within the Intelligent Cloud business, revenue from Azure and other cloud services grew 31 percent, down from 35 percent in the prior-year quarter, but at 38 percent in constant currency, slightly above market expectations of 37 percent. The analysis suggests that the cloud business can show resilience as demand from enterprises remains stable.

In addition, the personal computing business, which includes Windows, Xbox, search advertising and Surface, recorded $14.2 billion, down 19 percent year-over-year.

2, Azure may continue to be weak

Microsoft Chief Financial Officer Amy Hood said in a conference call that the company's business performance was weak at the end of last year, and that growth in intelligent cloud services has slowed. He also added that the company expects Azure revenue growth to slow by 4-5 percentage points from current levels.

Earlier, Microsoft CEO Nadella acknowledged at the World Economic Forum in Davos that the cloud business is going through a period of deceleration and that it will be difficult to return to the high growth rates seen in the two years prior to the outbreak of the new coronary pneumonia. Given these factors, Nadella said the company will be forced to improve productivity, that is, reduce staff costs and other expenses.

In response, Hood noted that Microsoft will continue to invest in long-term opportunities, citing the expansion announcement of its partnership with OpenAI on Monday. Hood expects the company's capital expenditures to increase further in the third quarter.

Nadella also said during the call that while Microsoft Cloud transforms the world's most advanced artificial intelligence model into a new computing platform, the next major wave of computing is emerging. "We're committed to doing more with less and innovating for the future in the new era of artificial intelligence."

3. Summary

Overall, the company's overall results for the quarter were unsatisfactory in terms of revenue growth and earnings performance. Growth slowed further and margins declined further. Profit growth continued to underperform revenue growth. However, on the structural side, the company's Intelligent Cloud and Productivity divisions actually performed better than expected, while growth in B-side or cloud services (e.g. Azure, Dynamics 365, Commercial LinkedIn) was significantly better than the market's pessimistic expectations. the strongest resilience and growth potential of the B-side Industrial Internet was again on display. This is the most compelling point in the company's poor financial relationship.

At the same time, this earnings report also shows that the impact of exchange rate losses on the company's results due to the strengthening of the US dollar interest rate is diminishing, but local growth, which is not affected by exchange rates, is declining rapidly. You can also see from the amount of contracts just signed that foreign demand is weakening. The key factor affecting the company's performance is the shift from interest rates to real economic growth.

In my opinion, Microsoft's performance is still in a downward trend, and in this case, it is the best investment logic to determine when the performance inflection point will come. The company's conference call forecast for the next quarter does not seem to satisfy the market, and the extent of the deterioration of the U.S. and European economies in 2023 is unclear. Therefore, Microsoft's earnings inflection point may not have arrived yet.

@CaptainTiger @TigerStars @MillionaireTiger