Microsoft Q1 FY2023 Earnings Growth Expected to Slow

Focus on MSFT Intelligent Cloud Revenue

Key Takeaways

  • Analysts estimate adjusted EPS of $2.30 vs. $2.27 in Q1 FY 2022.
  • The company's Intelligent Cloud revenue is expected to grow at a solid pace, but at the slowest rate in several years.
  • Profit and revenue are also expected to increase at a much slower pace than in recent years.

Microsoft Corp. (MSFT), the world's largest software company by revenue, probably will say profit and revenue growth slowed in the third quarter due to foreign exchange pressure and a sharp drop-off in PC sales. Microsoft's fiscal year (FY) ends on June 30.

Microsoft will likely say adjusted earnings per share (EPS) excluding certain items rose 1.3% year-over-year to $2.30, while revenue climbed 9.3% to $49.5 billion, according to an average estimate from Visible Alpha.

A strong dollar and accelerating inflation have threatened Microsoft's financial performance. To make matters worse, sales of computing hardware such as PCs have slumped in recent months following a surge related to the increase in hybrid and work-from-home setups early in the pandemic.

Microsoft's earnings performance could be buoyed by its Intelligent Cloud segment, including the company's Azure and other cloud services. Together, these represent the fast-growing cloud computing business, offering a comprehensive set of services to developers, IT professionals, and enterprises. Analysts expect the company's cloud business revenue to have grown more slowly than the same period a year ago.

The tech giant's stock has echoed the broader market in the last quarter, although it fell slightly faster in the late summer. Microsoft shares are down 21% in the last year compared with a drop of 18% for the S&P 500 Index.

One Year Total Return for S&P 500 and Microsoft
Source: TradingView.

Microsoft Earnings History

Microsoft's adjusted EPS soared during its FY 2021, ended in June of that year and representing the early portion of the pandemic, before dipping to the lowest level in several years for FY 2022. Analysts predict a further slowdown for FY 2023 beginning with a rapid deceleration for its first quarter.

The company's revenue growth had a similar trajectory, surging in FY 2021. It maintained that superior growth in FY 2022 but is predicted to drop below pre-pandemic levels for FY 2023. Q1 revenue growth is expected to be the smallest in at least several years.

Microsoft Key Stats
  Estimate for Q1 FY 2023 Q1 FY 2022 Q1 FY 2021
Adjusted Earnings Per Share ($) 2.30 2.27 1.82
Revenue ($B) 49.5 45.3 37.2
Intelligent Cloud Revenue ($B) 20.3 17.0 13.0

Source: Visible Alpha

The Key Metric

Microsoft's Intelligent Cloud segment comprises a range of products and services that can be used for networking, storage, mobile and web application services, artificial intelligence (AI), the Internet of Things (IoT), and a variety of other computing needs. The company's cloud business is growing and could reach $220 billion by FY 2027. Supply chain-related shortages of servers and IT equipment have helped fuel growth as businesses turn to providers like Microsoft that already have key infrastructure in place, according to October 2022 Goldman Sachs equity research on Microsoft. Still, major rivals including Inc.'s (AMZN) Amazon Web Services and Alphabet Inc.'s (GOOGL) Google Cloud are competing for an increasing share of the business.

Microsoft's Intelligent Cloud revenue growth has been strong and consistent over the last several years. It spiked at over 30% in Q1 FY 2022 and has fallen on a sequential basis since then. Analysts predict revenue growth of 19.9% in this area for Q1 FY 2023. Though solid, that would be the slowest pace of growth in two years.

Article Sources
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  1. ComputerWorld. "PC Sales Fall Off a Cliff."

  2. Statista. "Largest Software and Programming Companies Worldwide by Sales Revenue from 2017 to 2022."

  3. Microsoft Corp. "Frequently Asked Questions."

  4. Visible Alpha. "Financial Data."

  5. Microsoft Corp. "First Quarter Fiscal Year 2023 Outlook," Slide 2.

  6. Microsoft Corp. "Form 10-K for the Fiscal Year Ended June 30, 2022," Page 13.

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