Earlier this week, after reporting its fourth-quarter financials for fiscal year 2023, Microsoft stock dropped from $350.98 per share on July 25 to $334.16 as of 1:25 p.m. Eastern on July 27. The dip is due to worse-than-anticipated quarterly revenue guidance for the first quarter of fiscal year 2024 and slower growth in AI-related revenue, reports CNBC.
Source: Microsoft
For the quarter ended June 30, 2023, the company reported total revenue of $56.2 billion, an 8% increase year-over-year. Operating income for the quarter was $24.3 billion, an 18% increase, and net income was $20.1 billion, a 20% increase year-over-year. Diluted earnings per share were $2.69, a 21% increase year-over-year.
Chairman and CEO Satya Nadella commented on the technology company’s results on a July 25, 2023 earnings call.
“Every customer I speak with is asking not only how, but how fast, they can apply next generation AI to address the biggest opportunities and challenges they face – and to do so safely and responsibly,” said Nadella.
“To that end, we remain focused on three key priorities: first, helping customers use the breadth and depth of Microsoft Cloud to get the most value out of their spend; second, investing to lead in the new AI platform shift by infusing AI across every layer of the tech stack; and third, driving operating leverage,” Nadella added.
Amy Hood, executive vice president and CFO, said the company “delivered a solid close to the fiscal year” which was driven by Microsoft Cloud revenue, which saw a 21% increase year-over-year.
Fourth quarter highlights
Microsoft shared the following highlights for the fourth quarter:
- Revenue in Productivity and Business Processes was $18.3 billion, a 10% increase year-over-year, representing 32.6% of total revenue.
- Office Commercial products and cloud services revenue increased 12%, driven by Office 365 Commercial growth of 15%.
- Office Consumer products and cloud services revenue increased 3% year-over-year.
- LinkedIn revenue increased 5% year-over-year.
- Dynamics products and cloud services revenue increased 19% year-over-year.
- Revenue in Intelligent Cloud was $24.0 billion, a 15% increase year-over-year, representing 42.7% of total revenue.
- Server products and cloud services revenue increased 17% year-over-year.
- Revenue in More Personal Computing was $13.9 billion, a 4% decrease year-over-year, representing 24.7% of total revenue.
- Windows OEM revenue decreased 12% year-over-year.
- Devices revenue decreased 20% year-over-year.
- Windows Commercial products and cloud services revenue increased 2% year-over-year.
- Xbox content and services revenue increased 5% year-over-year.
- Search and news advertising, less acquisition costs, increased 8% year-over-year.
- Microsoft returned $9.7 billion to shareholders via share repurchases and dividends.
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Fiscal year 2023 results
Microsoft shared the following results for fiscal year 2023 which ended June 30.
- Total revenue for the fiscal year was $211.9 billion, a 7% increase year-over-year.
- Operating income was $88.5 billion (GAAP), a 6% increase year-over-year.
- Net income was $72.4 billion (GAAP), a slight decrease.
- Diluted earnings per share were $9.68 (GAAP), a slight increase.
“As a company, we delivered on the FY23 financial commitments we discussed a year ago on revenue and operating margin. A focus on operational excellence allowed us to achieve these targets while we delivered near term value to customers and prioritized our investments to continue to lead in the future,” said Hood.
Guidance for FY24 Q1
Hood shared the following guidance for the first quarter of fiscal year 2024:
- Productivity and Business Processes revenue will grow an estimated 9% to 11% to between $18 billion and $18.3 billion.
- The company estimates that Office consumer will see growth in the low to mid-single digits, driven by Microsoft 365 subscriptions.
- LinkedIn revenue is expected to grow in the low to mid-single digits.
- Dynamics revenue growth will range in the mid to high teens, driven by Dynamics 365.
- Intelligent Cloud revenue is estimated to grow between 15% and 16% to between $23.3 billion and $23.6 billion.
- More Personal Computing revenue is estimated to grow between $12.5 billion and $12.9 billion with continued revenue decreases in Windows OEM and Devices.
“As we start FY24, we are excited for the opportunities ahead, and remain focused on delivering the three key priorities Satya mentioned. We’ll maintain our lead as the top commercial cloud by helping customers use the breadth and depth of the Microsoft Cloud. We’ll continue to invest in our cloud and AI infrastructure while scaling with growing demand so we can lead the AI platform wave. And finally, we’ll align our costs with growth as we are committed to driving operating leverage,” Hood explained.
Insider Take
This has been a busy month for Microsoft already, with the FTC dropping their case against them in the Activision Blizzard deal and the launch of Bing Chat Enterprise and pricing announcement for Microsoft Copilot. They also postponed the closing date until October to give the company more time to get regulatory approval in the UK. Microsoft’s results may be lower than industry analysts expected, but they are still impressive. The stock dip is a minor blip on their radar.
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