By Yuvraj Malik
(AFP) – Microsoft Corp. is set to post its slowest quarterly revenue growth in five years on Tuesday, with some analysts questioning whether the company can maintain its annual outlook against a declining PC market and a strong dollar.
Rising inflation this year has fueled concerns about a global economic slowdown and forced consumers and businesses to cut spending on computers and laptops, reducing sales of some key Microsoft products including Windows and the Office suite.
Adding to the consolidation, the dollar has increased by 17% which weighs on the earnings of companies with large global operations. Microsoft earns more than 50% of its revenue outside the United States.
“All eyes will be on Microsoft’s ability to maintain its FY23 guidance for reported double-digit revenue growth, which we believe is at risk,” Guggenheim analysts said last week.
UBS said the stock was heavily priced into the potential run over forecast.
At least 15 brokerages cut their price targets on the software giant in October, and the company’s shares fell by more than a quarter in 2022.
According to research firm Gartner, PC shipments fell 19.5% in the third quarter of this year.
Windows licenses account for about 12% to 13% of Microsoft’s revenue and are expected to offset the decline in the PC market by 100 basis points, Morningstar senior analyst Dan Romanoff said.
The blow is expected to be slightly offset by Microsoft’s Azure cloud services unit, which is expected to grow 20% in the first quarter, according to Refinitiv data.
“Our CIO research work shows that enterprise IT usage of Azure is likely to share versus Amazon AWS,” JP Morgan said in a recent note.
But signs of a slowdown in cloud adoption have begun. An analysis by Piper Sandler showed that total revenues in the top 100 software companies are estimated to grow 22% in 2022 and 20% in 2023, up from 33% in 2021. decreases.
Software companies are the largest consumers of cloud platforms and their business growth is taken as a proxy for the cloud services sector.
** Microsoft’s first-quarter revenue is expected to rise 9.5% to $49.61 billion, the first sub-10% growth since the third quarter of fiscal 2017 – Refinitiv
** Earnings per share are estimated at $2.30
WALL STREET SENTIMENT
* 48 out of 52 analysts rate the stock a “buy” or higher, and four rate it a “hold.”
* Average price target is $315, down from $336 in early 2022
* Microsoft traded at $246.64 on Monday
(Reporting by Yuvraj Malik in Bengaluru; Editing by Aditya Soni and Sriraj Kalluvila)