Microsoft's Balance Sheet: Weak Cloud Growth Affected Shares

Microsoft Earnings: Weak Cloud Growth Affects Shares

The technology giant Microsoft (MSFT) announced its financial results for the second quarter. Although the company reported revenue above analysts' expectations, weak cloud growth and moderate forward guidance disappointed its investors.

Revenue and Profitability Figures

Microsoft achieved $81.27 billion in revenue, reflecting a 16.7% annual increase, and reported $4.14 in adjusted earnings per share. Analysts' forecasts were for $80.27 billion in revenue and $3.97 in earnings. However, the company's operating margin for the third fiscal quarter was 45.1%, below the 45.5% level that analysts had expected.

Cloud Services and Growth Forecasts

Revenue from Azure and other cloud services was recorded at 39% in the second quarter, although the growth rate slightly declined compared to the first quarter of the fiscal year. Analysts projected growth between 39.4% and 38.9% for this quarter. The company expects its revenue for the third fiscal quarter to be between $80.65 billion and $81.75 billion, in line with the LSEG consensus source.

Commercial Performance Obligation and Other Revenues

The commercial remaining performance obligation increased by 110% year-over-year to $625 billion. This increase was driven by the $250 billion cloud commitment made with OpenAI. Additionally, the company recorded other revenues of $9.97 billion and other expenses of $2.29 billion.

Decline in Gaming and PC Segment

Microsoft's Personal Computer segment generated $14.25 billion in revenue this quarter from Windows, Xbox, and Surface products. However, this figure represented a 3% decline compared to the same quarter of the previous year. Gaming revenues decreased by 9.5%; the company attributed this drop to an impairment charge in the gaming division.

Capital Expenditures and Future Outlook

Microsoft made $37.5 billion in capital expenditures and financial leasing during this quarter. CEO Satya Nadella noted that approximately one gigawatt of total capacity has been added. CFO Amy Hood emphasized that customer demand has outpaced supply, and expressed that this situation necessitated balancing due to the need to increase R&D resources for new artificial intelligence services.