Photo Credit: efes from Pixabay

Last week, Microsoft (Nasdaq: MSFT) reported results for its fourth quarter which missed analyst estimates. This was its slowest quarterly growth since 2020 as worsening foreign exchange rates and weakness in PC demand and advertising spending took a toll. However, it provided a resilient outlook of double-digit growth for FY23 based on sustained momentum in its cloud business.

Microsoft’s Financials

Fourth quarter revenues grew 12% to $51.9 billion, missing the market’s forecast of $52.4 billion. GAAP net income increased 2% to $16.7 billion. EPS grew 3% to $2.23 versus analyst estimates of $2.29. 

By segment, revenue from Productivity and Business Processes grew 13% to $16.6 billion. Office Commercial products and cloud services revenue grew 9% driven by 15% growth of Office 365 Commercial revenue. Office Consumer products and cloud services revenue increased 9% and Microsoft 365 Consumer subscribers increased to 59.7 million. Dynamics products and cloud services revenue increased 19% driven by 31% growth of Dynamics 365 revenue. LinkedIn revenue increased 26%.

Reduced advertising spend impacted LinkedIn Marketing Solutions and Search & News advertising by over $100 million. 

Revenue from the More Personal Computing segment grew 2% to $14.4 billion driven by 18% growth in Search Advertising revenue, 6% growth in Windows Commercial products, and 10% growth in Surface revenue. However, Windows OEM revenue fell 2% due to extended production shutdowns in China and the weak PC market and Xbox content and services revenue declined 6%.

Revenue from the Intelligent Cloud segment improved 20% to $20.9 billion driven by 22% increase in Server products and cloud services revenue and 40% growth in Azure revenues. It reported a record number of larger and long-term Azure contracts.  

Fiscal year 2022 revenue grew 18% to $198.3 billion. Net income was $72.7 billion, up 19%. Microsoft returned $12.4 billion to shareholders in the form of share repurchases and dividends in the fourth quarter, up 19% y-o-y.

For the current quarter, Microsoft has seen continued weakness in PC demand and in advertising spending. For the first quarter, it expects revenue of $49.25 to $50.25 billion or about 10% growth based on the midpoint of the guidance. Analysts expect revenue of $51.4 billion.

Microsoft reiterated its outlook for double-digit revenue and operating income growth in FY23 even as the tough macro conditions are expected to continue. It expects its commercial business to offset the headwinds in its consumer business.

Microsoft’s Recent Miburo Acquisition

Microsoft recently acquired cyber threat analysis and research company Miburo to boost its threat intelligence research into new foreign cyber threats. Miburo has become a leading expert in identification of foreign information operations. Miburo’s research teams detect and attribute malign and extremist influence campaigns across 16 languages. New York-based Miburo was founded and bootstrapped by Clint Watts in 2012. Terms of the deal were not disclosed.

The acquisition will become part of Microsoft’s Customer Security and Trust organization and Miburo analysts will work closely with Microsoft Threat Intelligence Center. Microsoft has been beefing up its security portfolio in recent years with the acquisition of RiskIQ, Reform Labs, and CyberX in 2021. 

Its stock is trading at $280.74 with a market capitalization of $2.1 trillion. The stock is inching up following the rosy outlook. It hit a 52-week high of $349.67 in November last year. It hit a 52-week low of $241.51 in June this year.

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