Microsoft reports its latest financial report Tuesday, kicking off a big earnings week for tech giants amid ongoing economic uncertainty.
The company’s quarterly results may serve as a bellwether for the rest of the enterprise software industry to see if demand has kept up in the face of numerous headwinds including supply chain issues, inflation, interest rate hikes, and the energy crisis in Europe, among others. Microsoft is also dealing with slowing PC sales.
Analysts will be watching the company’s cloud business, “the linchpin to the Microsoft long-term bull thesis,” Wedbush analyst Dan Ives wrote in a recent note to clients. Azure growth is “firm and healthy,” Ives said, and Microsoft remains one of his firm’s top picks in tech heading into next year.
J.P Morgan analyst Mark Murphy last week wrote that Microsoft “has pulled ahead of the pack with a state-of-the-art cloud platform.”
“Microsoft remains steadfast in chasing the long-term tail of the digitization of people, places, and processes, and, in our view, clearly articulates its differentiated value proposition into a period of time which may compel cost-conscious customers to shy away from expensive best-of-breed point solutions,” they wrote.
Microsoft Cloud revenue came in at $25 billion in the most recent quarter, representing nearly half of the company’s total revenue, and up 28% year-over-year.
Microsoft’s earnings report this week will cover the period ended September 30, the first quarter of its 2023 fiscal year. Wall Street expects revenue of $49.7 billion, up 10% year-over-year, and earnings per share of $2.31, up slightly from the year-ago period.
Microsoft stock is down nearly 30% this calendar year, but up 2% over the past month.
Companies around the world have become more cautious in their spending and hiring, bracing for the potential of a recession. Selective job cuts are becoming a common occurrence across the tech industry.
Microsoft has been part of the trend. The company earlier this month confirmed that it laid off employees across multiple divisions. This summer it reduced its number of open positions, after boosting compensation packages for existing employees earlier in the year.
On its last earnings call, Microsoft said its operating expenses would grow significantly in the early part of the current fiscal year, but that will change as Microsoft slows its hiring “to focus on key growth areas and increase the productivity of prior year headcount investments.”
Microsoft had 221,000 employees as of June 30, an increase of 40,000 people or 22% from the same point the prior year. It was the largest annual increase in employment in Microsoft’s history, based on data tracked by GeekWire.
Google also reports earnings Tuesday, with Meta reporting Wednesday, and Apple, Amazon, Intel reporting Thursday.