Following the reporting of another solid quarter, Microsoft’s stock was decimated by investors who dropped enough stock to shed close to $100 billion in evaluation as its AI growth comes up shy of growth expectations.
As Microsoft prepares for a rocky call with investors eager to have positive answers to the first cloud growth miss the company has tallied in over three years, the company had a roster of wins this quarter for is gaming, Office, and non-AI related cloud and services businesses.
According to the numbers, Microsoft brought in $56.2 billion in revenue that amounted to $20.1 billion in net income for the company. The revenue and net income increase for the quarter represent an 8 and 20 percent increase respectively year over year. Microsoft also managed to increase its operating income by 18 percent totaling $24.3 billion for the quarter.
Other Microsoft quarterly highlights include:
Revenue in Productivity and Business Processes was $18.3 billion and increased 10% (up 12% in constant currency), with the following business highlights:
· Office Commercial products and cloud services revenue increased 12% (up 14% in constant currency) driven by Office 365 Commercial revenue growth of 15% (up 17% in constant currency)
· Office Consumer products and cloud services revenue increased 3% (up 6% in constant currency) and Microsoft 365 Consumer subscribers grew to 67.0 million
· LinkedIn revenue increased 5% (up 7% in constant currency)
· Dynamics products and cloud services revenue increased 19% (up 21% in constant currency) driven by Dynamics 365 revenue growth of 26% (up 28% in constant currency)
Revenue in Intelligent Cloud was $24.0 billion and increased 15% (up 17% in constant currency), with the following business highlights:
· Server products and cloud services revenue increased 17% (up 18% in constant currency) driven by Azure and other cloud services revenue growth of 26% (up 27% in constant currency)
Revenue in More Personal Computing was $13.9 billion and decreased 4% (down 3% in constant currency), with the following business highlights:
· Windows OEM revenue decreased 12%
· Devices revenue decreased 20% (down 18% in constant currency)
· Windows Commercial products and cloud services revenue increased 2% (up 3% in constant currency)
· Xbox content and services revenue increased 5% (up 6% in constant currency)
· Search and news advertising revenue excluding traffic acquisition costs increased 8%
Microsoft returned $9.7 billion to shareholders in the form of share repurchases and dividends in the fourth quarter of fiscal year 2023.
Some notable stand outs in the Microsoft’s earnings are the instant gains the company felt from its Activision Blizzard acquisition which held an almost 50 percent positive impact on that business sectors portfolio with gaming revenue up 44 percent, content and services up 61 percent year over year despite Xbox hardware weighing heavily on the overall gains by a negative 42 percent.
And while investors are bearish on not seeing parallel growth in Microsoft’s AI investments, it should be noted that GitHub’s annualized run rate now exceeds $2 billion thanks to the company’s Copilot AI platform that now represents a 40 percent growth in revenue for the year and contributing to an increased value of the developer repository worth more than its initial purchase price in 2018.
Another seemingly negative mark in an otherwise positive earnings report is the continued decline of Microsoft’s first party hardware division as Surface revenue claimed another 11 percent decline and marks adds to the two-year long losing streak the business has been on.
Nevertheless, Microsoft is currently a victim of its own hype monster when it comes to investors feeling skittish over the company’s massive investment in generative technologies as of late. Investors expected to see Microsoft’s AI-led intelligent cloud division walk home with $28.7 billion in revenue but the company only managed to muster $28.5 billion for the quarter.
Even with Microsoft continuing to beat street estimates on its core business offerings, the AI elephant in the room is now starting to make enough noise that’s getting investors to hold their wallets and instead, start asking more questions.
Microsoft joins Alphabet in a similar after hours selling frenzy as that company saw its shares fall by 5 percent.
