Will Microsoft’s forecast for its Azure cloud business exceed 40% growth?
It’s a way for Wall Street to use Microsoft’s quarterly report on Tuesday afternoon to gauge not just the company’s results, but also the future prospects of the broader enterprise tech economy. , according to an analyst.
“We believe that given the large storm clouds on the horizon, all attention will be [Microsoft CEO Satya] Nadella’s comments and advice regarding Azure’s growth heading into FY23, which we believe the line in the sand is north of 40% growth as a barometer for the street ahead approaching Fiscal 1Q,” Wedbush analyst Daniel Ives wrote in a July 21 note to clients.
Microsoft’s earnings report this week will cover the period ending June 30, the fourth quarter of its 2022 fiscal year.
By comparison, in its third fiscal quarter, Microsoft reported revenue growth of 46% in its Azure business and other cloud services, or 49% in constant currency (adjusted for exchange rate fluctuations). ).
For the company as a whole, analysts on average expect fourth-quarter revenue of $52.47 billion, up 14% year-over-year, and earnings of $2.30 per share, from $2.17 per share in same quarter last year.
Broader economic indicators: Microsoft’s report is one of the few that could set the tone for the coming weeks and months in the tech industry. Apple, Google and Amazon are also releasing their quarterly results this week. But Microsoft’s numbers often offer a clearer view of the outlook for technology spending by companies in particular.
Businesses around the world have become more cautious in their spending and hiring, preparing for the potential of an economic downturn. Selective job cuts are becoming commonplace in the tech industry.
Microsoft itself has been part of the trend. In recent weeks, the company has cut jobs and reduces its number of open positionsafter increasing the salaries of existing employees earlier in the year.
Microsoft stock fell 0.5% on Monday morning after Wells Fargo analysts cut their price target for the company, citing factors such as inflation, rising interest rates and a stronger dollar creating a difficult environment for exchange rates. Microsoft cut its forecast in June due to exchange rates.
Microsoft’s decline has contributed to a drop in the broader Nasdaq index.
In the enterprise networking sector, Bank of America analysts downgraded shares of a handful of companies that sell hardware devices, including Seattle’s F5, which reports earnings Monday afternoon. F5 has expanded its business into cloud and security software significantly in recent years.
Is the security sector booming? In other respects, Microsoft might prove to be an exception rather than an indicator. Its security technology business benefits from factors such as the White House directive on cybersecurity in January this year, JP Morgan analyst Mark Murphy said during a July 21 briefing on the company’s latest survey of Microsoft partners.
“Microsoft security software is really gaining momentum, the directive from the White House is really pushing people to move in that direction,” Murphy said, citing comments from Microsoft’s partners in the survey. “And I would encourage you to take a step back and keep in mind that these budgets are huge when you’re talking about the federal government.”
Microsoft last released numbers for its security technology business in the second quarter of its fiscal year 2022, saying security revenue exceeded $15 billion at that time, up nearly 45% from one year to the next.
Nadella outlined the security strategy at Microsoft’s Inspire partner conference last week, saying the company is able to save customers more than 60% on average when they consolidate their security business with Microsoft at from several suppliers.