Microsoft Misses

July 27, 2022

Microsoft reported results for the quarter ended June 30, 2022. The firm had earnings of $2.23 per share, adjusted with $2.29 per share expected. Top line revenue was $51.87 billion with $52.44 billion expected.

“We see real opportunity to help every customer in every industry use digital technology to overcome today’s challenges and emerge stronger,” said Satya Nadella, chairman and chief executive officer of Microsoft. “No company is better positioned than Microsoft to help organizations deliver on their digital imperative – so they can do more with less.”

“In a dynamic environment we saw strong demand, took share, and increased customer commitment to our cloud platform. Commercial bookings grew 25% and Microsoft Cloud revenue was $25 billion, up 28% year over year,” said Amy Hood, executive vice president and chief financial officer of Microsoft. “As we begin a new fiscal year, we remain committed to balancing operational discipline with continued investments in key strategic areas to drive future growth.”

Microsoft is looking for $49.25 billion to $50.25 billion in fiscal first-quarter revenue. The middle of the range which is $49.75 billion, implies about 10% revenue growth. But, Wall Street was expecting a mid range point of $51.49 billion. For the new 2023 FY, Microsoft reiterated its forecast from three months ago, despite the economic climate.

“We continue to expect double digit revenue and operating income growth in constant currency and U.S. dollars,” Amy Hood, Microsoft’s finance chief, said on a conference call with analysts.

Impact of Recent Events

In the fourth quarter of fiscal year 2022, evolving macroeconomic conditions and other unforeseen items had an impact on financial results beyond what was included in our forward-looking guidance provided on April 26, 2022.

Unfavorable foreign exchange rate movement within the quarter negatively impacted revenue and diluted earnings per share $(595) million and $(0.04), respectively. Additional details are provided in the Earnings Call Slides.
Extended production shutdowns in China that continued through May and a deteriorating PC market in June contributed to a negative impact on Windows OEM revenue of over $(300) million
Reductions in advertising spend contributed to a negative impact on LinkedIn as well as Search and news advertising revenue of over $(100) million
With the ongoing war in Ukraine, we made the decision to significantly scale down our operations in Russia. As a result, we recorded operating expenses of $126 million related to bad debt expense, asset impairments, and severance.
As part of a strategic realignment of our business groups, we recorded employee severance expenses of $113 million, excluding Russia

Business Highlights

Revenue in Productivity and Business Processes was $16.6 billion and increased 13% (up 17% in constant currency), with the following business highlights:

Office Commercial products and cloud services revenue increased 9% (up 13% in constant currency) driven by Office 365 Commercial revenue growth of 15% (up 19% in constant currency)
Office Consumer products and cloud services revenue increased 9% (up 12% in constant currency) and Microsoft 365 Consumer subscribers grew to 59.7 million
LinkedIn revenue increased 26% (up 29% in constant currency)
Dynamics products and cloud services revenue increased 19% (up 24% in constant currency) driven by Dynamics 365 revenue growth of 31% (up 36% in constant currency)

Revenue in Intelligent Cloud was $20.9 billion and increased 20% (up 25% in constant currency), with the following business highlights:

Server products and cloud services revenue increased 22% (up 26% in constant currency) driven by Azure and other cloud services revenue growth of 40% (up 46% in constant currency)

Revenue in More Personal Computing was $14.4 billion and increased 2% (up 5% in constant currency), with the following business highlights:

Windows OEM revenue decreased 2%
Windows Commercial products and cloud services revenue increased 6% (up 12% in constant currency)
Xbox content and services revenue decreased 6% (down 4% in constant currency)
Search and news advertising revenue excluding traffic acquisition costs increased 18% (up 21% in constant currency)
Surface revenue increased 10% (up 15% in constant currency)

Microsoft returned $12.4 billion to shareholders in the form of share repurchases and dividends in the fourth quarter of fiscal year 2022, an increase of 19% compared to the fourth quarter of fiscal year 2021.

Fiscal Year 2022 Results

Microsoft reported the following results for the fiscal year ended June 30, 2022, as compared to the corresponding period of last fiscal year:

Revenue was $198.3 billion and increased 18% (up 19% in constant currency)
Operating income was $83.4 billion and increased 19% (up 21% in constant currency)
Net income was $72.7 billion GAAP and increased 19%, and $69.4 billion non-GAAP and increased 15% (up 16% in constant currency)
Diluted earnings per share was $9.65 GAAP and increased 20%, and $9.21 non-GAAP and increased 16% (up 17% in constant currency)
GAAP results include a $3.3 billion net income tax benefit