Microsoft Revenue Growth Stays Low as Economic Concerns Hurt Demand
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Microsoft Corp. said its growth remained subdued last quarter as economic concerns cooled consumer demand and corporate orders for the company’s software and cloud services.
The software giant said revenue for the three months through March rose 7% from a year earlier. That growth as well as the company’s outlook for the current quarter topped analysts’ expectations, sending Microsoft’s share price sharply higher. But last quarter’s results marked the second straight quarter below the company’s yearslong trend of double-digit percentage growth.
The cloud-computing business, the engine of Microsoft’s growth in recent years, has been decelerating after years of expansion. The company said revenue in its Azure cloud-computing business rose 27% in the latest quarter. That was in line with the average forecast of analysts surveyed by FactSet, and the company’s lowest quarterly growth ever.
“Customers continue to exercise some caution as optimization and new workload trends from the prior quarter continued,” Microsoft Chief Financial Officer Amy Hood said on a conference call Tuesday.
Microsoft’s net income rose 9%, a gain that was also well above consensus market forecasts.
The company said its revenue this quarter should be between $54.85 billion and $55.85 billion. Wall Street was predicting revenue of $54.71 billion for the quarter.
Microsoft shares, which had fallen in recent days, rose 8% in after-hours trading following the company’s results announcement and outlook. Until the close of regular trading on Tuesday, the stock had risen about 15% this year. It is still far below its record high hit in late 2021.
Microsoft executives have been signaling to investors for months that a sluggish economy would take a toll on the company’s cloud business. Many of Microsoft’s cloud customers have been looking for ways to pare back their overall cloud-computing bills.
Other areas in Microsoft’s business, such as its office software and Windows operating system, have been weak, as personal-computer sales struggle. Microsoft’s PC revenue fell 9% during the quarter, led lower by shrinking demand for computer operating systems and devices.
The downbeat outlook for Microsoft’s key business stands in contrast to the company’s strong stock performance this year. Its shares have been rising, in part, because of investor excitement over its embrace of generative artificial intelligence. In January, Microsoft said it was deploying the technology behind the viral chatbot ChatGPT across its products.
“The excitement around AI is creating new opportunities,” Microsoft Chief Executive Satya Nadella said on the earnings call.
Overall, Microsoft reported $18.3 billion of net income for the three months through March on revenue of $52.9 billion. Analysts surveyed by FactSet on average predicted the company would report profit of $16.69 billion and sales of $51.02 billion for the period.
Microsoft has invested billions of dollars in OpenAI, the company behind ChatGPT, and it owns 49% of the company. Microsoft has either rolled out or announced plans to deploy the technology across products such as Bing search and Microsoft 365, its suite of office software.
Despite the tech industry’s enthusiasm over generative AI, and belief the technology can unleash a wave of growth in customer spending on cloud computing, analysts said it is unlikely to drive meaningful sales just yet.
“The AI side is unique, but that’s obviously not going to hit revenue for a little bit,” said Brad Reback, an analyst with Stifel Financial Corp.
When that business does start to buoy sales, he said, Microsoft might have a head start on competitors such as Alphabet Inc.’s Google cloud services and Amazon.com Inc.’s Amazon Web Services, which both announced their AI plans later.
While Microsoft has disclosed ambitious plans to incorporate generative AI across its products such as Outlook and Excel, the company is rolling it out slowly and analysts said integrating the new features could be expensive. Microsoft executives haven’t laid out how the company expects to earn money from most of these new features.
Write to Tom Dotan at tom.dotan@wsj.com