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Microsoft earnings preview

Microsoft

Microsoft will report its Q1 FY24 earnings after the US markets close on 24 October, which will be the morning of 25 October in the Asia-Pacific time zone. The company’s shares fell about 10% after hitting an all-time high in July as the AI frenzy faded. Microsoft has been a front-runner in the AI race since its launch of ChatGPT in February. However, its cloud business, Azure’s revenue growth slowed for the fifth consecutive quarter, according to its last quarterly report. Below are the key aspects of its upcoming earnings results.

Q4 FY23 Review

Microsoft beat market expectations in its Q4 FY23 results, with earnings per share at $2.69 on revenue of $56.19 billion, up 20% and 8% from a year ago, respectively. However, the company provided disappointing guidance for the current quarter as weakened demands in PC continued to pressure the growth. Microsoft forecasted revenue of between $53.8 billion and $654.8 billion for the September quarter, implying an 8% year-on-year growth, missing an estimated $54.94 billion. Its key division, Azura Cloud, rose 26% from a year ago, posting the fifth consecutive month slowdown. 

Source: Microsoft

Microsoft’s development in Azure OpenAI Service

Since the announcement of a $10 billion investment into ChatGPT, Microsoft has thrived in AI development in the cloud business Azure. The company announced that ChatGPT was available in preview in Azure OpenAI Service in early March and expanded its service to wider applications and regions in the past 6 months. The prominent progress was an announcement of the Microsoft 365 Copilot, which is its artificial intelligence supplement to the core software such as Word and Excel. Office makes up approximately 24% of the tech giant’s revenue and grew 16% year on year in the June quarter. Hence, Azure and other cloud services, together with Office 365 Commercial revenue, will be the key focused sections in the upcoming earnings report. Microsoft’s CFO, Amy Hood, said that growth from AI services would be gradual and the financial effect would mainly show in the second half of the fiscal year 2024, which is the first half of calendar year 2024.

Microsoft’s takeover of Activision Blizzard

Microsoft has finally completed the $69 billion takeover of Activision Blizzard recently. The industry’s biggest-ever deal may consolidate Microsoft’s top market share in the gaming empire as the tech giant gained control over games such as Call of Duty, World of Warcraft, Candy Crush etc. However, gaming revenue only accounts for about 6% of Microsoft’s overall revenue, and the benefit of the deal will not show in the upcoming earnings report.

Q1 FY24 Forecast by Bloomberg

Earnings Per Share: $2.655, +13% year on year

Revenue: $54.52 billion, +8.8%

Net Income: $19.77 billion, +12.6%

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