Microsoft shares slide despite 20% surge in profits

Company’s net income was driven by strong productivity and cloud businesses but revenue guidance for the quarter was missed

Microsoft's revenue during the April-June period jumped 8 per cent to $56.2 billion. AFP

Microsoft reported a 20 per cent increase in its fourth-quarter net profit but its shares slipped 4 per cent in extended trading as the technology giant missed its revenue guidance.

The company’s profit was driven by strong productivity and cloud businesses in different markets, Microsoft said on Tuesday.

Its net profit jumped to $20.1 billion in the three months to the end of June, from the same period a year earlier. Microsoft’s financial year ends in June.

Revenue during the April-June period jumped 8 per cent to $56.2 billion, exceeding analysts' expectations of $55.5 billion, marking the first time that growth falls below 10 per cent for three consecutive quarters since 2017.

The company's stock, which has gained more than 46 per cent since the start of this year, dropped to $337.80 a share in after-hours trading on Tuesday.

Its share price was $350.98 at market close ,giving Microsoft a value of $2.61 trillion.

Still, despite the mixed picture Microsoft’s last quarter’s results marked one of the best quarters in the tech heavyweight’s 48-year history, Jesse Cohen, senior analyst at Investing.com, told The National.

Mr Cohen said it showed the “strength and resilience of its operating business, as well as strong execution across the company” amid a slowing global economy.

"Microsoft exceeded both revenue and earnings per share expectations this quarter, thanks to a strong performance in its cloud business as well as fresh initiatives in AI [artificial intelligence].”

Revenue in Microsoft’s intelligent cloud division, which includes Azure public cloud, increased 15 per cent annually to $23.99 billion, above the $23.79 billion consensus of analysts surveyed by StreetAccount.

Sales from Azure and other cloud services, which Microsoft does not report in dollars, grew by about 26 per cent.

“We remain focused on leading the new AI platform shift, helping customers use the Microsoft cloud to get the most value out of their digital spend, and driving operating leverage,” said Satya Nadella, chairman and chief executive of Microsoft.

“Organisations are asking not only how – but how fast – they can apply this next generation of AI to address the biggest opportunities and challenges they face, safely and responsibly,”

Since 2016, Microsoft has committed to building Azure into an AI supercomputer for the world, serving as the foundation of its vision to democratise AI as a platform.

The company’s last quarter diluted earnings increased 21 per cent to $2.69 a share, compared to the $2.55 a share expected by analysts, Refinitiv reported.

Its operating income surged 18 per cent to $24.3 billion in the previous quarter compared to the prior year period.

The company's productivity and business processes division, which includes both its Microsoft Office business and revenue from LinkedIn, surged 10 per cent to $18.3 billion in the June quarter.

LinkedIn revenue increased almost 5 per cent annually. Microsoft did not give a dollar figure for its LinkedIn revenue and did not disclose the number of users.

Microsoft 365 Consumer – a bundle of various apps – subscribers increased to 67 million at the end of the last quarter, up 12 per cent on a yearly basis, the company said.

Sales in the personal computing division dipped 4 per cent to $13.9 billion in the quarter.

Search and news advertising revenue excluding traffic acquisition costs increased 8 per cent, while devices revenue decreased 20 per cent.

Xbox content and services revenue increased 5 per cent in the third quarter.

Microsoft also returned $9.7 billion to shareholders in the form of share repurchases and dividends in the fourth quarter of fiscal year 2023.

The company spent more than $6.7 billion on research and development, about 12 per cent of its total sales in the quarter.

This is 1.6 per cent less than what was spent on R&D in the same period in 2022. It is the first time since 2016 the company’s R&D spending has dropped on an annual basis.

Microsoft’s total cash, cash equivalents and short-term investments stood at more than $111.2 billion by the end of the June quarter.

In January, the technology company announced the laying off of 10,000 of its more than 221,000 employees to adjust to changing macroeconomics and to cut overall costs.

This month, Microsoft said it is cutting more jobs, amid a wave of tech industry layoffs.