Microsoft Corp. shares declined after the company warned that revenue growth in its cloud-computing business will decelerate in the coming months and corporate software sales will slow, fueling concern about demand for the products that have driven its momentum in recent years.
Shares fell as much as 2.7% to $235.51 in pre-market trading. Chief Financial Officer Amy Hood said in a call with investors Tuesday that Azure sales in the current period will slow by 4 or 5 points from the end of the fiscal second quarter, when gains were in the mid-30s percentage-wise. That business had marked a bright spot in a lackluster earnings report for Microsoft, whose other divisions were held back by a slump in sales related to personal computer software and video games.
Shareholders had initially sent the stock up more than 4%, encouraged by signs of resilience in Microsoft’s cloud business even in a weaker overall market for software and other technology products. But the company’s downbeat forecast brought the focus back to the software giant’s challenges as corporate customers hit the brakes on spending. Revenue growth of 2% in the second quarter was the slowest in six years, and Microsoft last week said it’s firing 10,000 workers.
The company posted adjusted profit in the period ended Dec. 31 of $2.32 a share, while sales rose to $52.7 billion. That compared with average analysts’ projections for $2.30 a share in earnings and $52.9 billion in revenue, according to a Bloomberg survey. Excluding currency impacts, Azure revenue gained 38% for the full quarter, slightly topping analyst predictions.
Microsoft said it recorded a charge of $1.2 billion, or 12 cents a share, in the latest quarter, with $800 million of that related to the job cuts, which will affect less than 5% of its workforce. The Redmond, Washington-based company said last week the charge will include severance, “changes to our hardware portfolio” and the cost of consolidating real estate leases.
The company’s shares were down 2.6% at $235.75 at 6:32 a.m. in New York. The stock dropped 29% in 2022, underperforming the Standard & Poor’s 500 Index.
After years of double-digit revenue gains fueled by Microsoft’s accelerating cloud business, and robust growth during the technology spending spree of the Covid-19 pandemic, Chief Executive Officer Satya Nadella acknowledged that the industry is going through a period of deceleration and will need to adjust.
“During the pandemic there was rapid acceleration. I think we’re going to go through a phase today where there is some amount of normalization in demand,” Nadella said in an interview at the World Economic Forum in Davos, Switzerland. “We will have to do more with less — we will have to show our own productivity gains with our own technology.”