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

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

FILE PHOTO: A Microsoft logo is seen in Los Angeles, California U.S. November 7, 2017. REUTERS/Lucy Nicholson

Microsoft Corp on Tuesday (Jul 26) forecast revenue this fiscal year would grow by double digits, driven by demand for cloud computing services and sending shares up 6 per cent.

The strong outlook shows 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, Microsoft results for the fourth quarter amounted to a slight miss, hurt by a stronger 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 Brett Iversen, Microsoft's general manager of investor relations.

Azure 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. In its broader Intelligent Cloud division, revenue was up 20 per cent to US$20.9 billion, ahead of the average Wall Street target of US$19.1 billion, according to Refinitiv.

For the first quarter, the Intelligent Cloud division was forecast to bring in US$20.3 billion to US$20.6 billion, with the upper end slightly above analysts' forecasts.

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

The US dollar index rose over 2 per cent in the quarter ended June and nearly 12 per cent this year, compared to 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, Iversen told Reuters. Three main factors reduced fourth-quarter revenue by about US$1 billion.

Foreign exchange negatively impacted revenue by nearly US$600 million. A slowdown in the PC market hit Windows OEM revenue by over US$300 million. And advertising spend slowdown hit LinkedIn and Search and news ad revenue by over US$100 million.

"With Microsoft being the size that they are, it's hard for them not to reflect the overall economy," John Freeman, vice president of equity research at CFRA Research. "We've got inflation and that's obviously going to dampen consumer demand."

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 in the fourth quarter, compared with $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 Jun 30, from US$16.46 billion, or US$2.17 per share, a year earlier.

Source: Reuters

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