Microsoft soothes market fears with forecast for double-digit revenue growth

Microsoft reported revenue of US$51.87 billion in the fourth quarter. PHOTO: REUTERS

BENGALURU (REUTERS) - Microsoft on Tuesday (July 26) forecast that revenue for this fiscal year would grow by double digits, driven by demand for cloud computing services and sending shares up 5 per cent.

The strong outlook shows that Microsoft continues to benefit from the pandemic-led shift to hybrid work models and comes at a time when investors are bracing for disaster, with inflation roaring and consumers cutting spending.

Despite the positive forecast for the fiscal year starting July 1, Microsoft's results for the fourth quarter amounted to a slight miss, hurt by a stronger US dollar, slowing sales of PCs and lower advertiser spending.

Still, Microsoft had its best quarter for its cloud business with record bookings for its cloud service called Azure, said Mr Brett Iversen, Microsoft's general manager of investor relations.

Azure's growth was 40 per cent, missing the 43 per cent analyst target compiled by Visible Alpha. It was up 46 per cent if foreign exchange factors are eliminated.

"We are seeing larger and longer-term commitments and won a record number of US$100 million-plus and US$1 billion-plus deals this quarter," said Microsoft chief executive Satya Nadella. "We have more data centre regions than any other provider and we will launch 10 regions over the next year."

Microsoft faces pressure from a stronger greenback as it gets about half of its revenue from outside the United States. This led the company to lower its fourth-quarter profit and revenue forecasts in June. Its shares have fallen about 25 per cent this year.

The US dollar index rose more than 2 per cent in the quarter ended June and nearly 12 per cent this year, compared with a 1 per cent drop a year earlier for the same period.

Without the stronger dollar, the company's 12 per cent year-on-year revenue growth would have been 4 percentage points higher, Mr Iversen told Reuters.

Mr John Freeman, vice-president of equity research at CFRA Research, said that with Microsoft's size, it is hard for the company "not to reflect the overall economy".

"We've got inflation and that is obviously going to dampen consumer demand," he added.

Softer consumer demand also hit gaming revenue, which fell 7 per cent year on year due to a drop in Xbox hardware, content and services, the company said.

Microsoft reported revenue of US$51.87 billion (S$72 billion) in the fourth quarter, compared with US$46.15 billion a year earlier. Analysts on average had expected revenue of US$52.44 billion, according to Refinitiv IBES data.

Net income rose to US$16.74 billion, or US$2.23 per share, during the quarter ended June 30, from US$16.46 billion, or US$2.17 per share, a year earlier.

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