Microsoft Corp. (MSFT) has posted robust profit and revenue growth in recent years, including amid the global pandemic. But a strong U.S. dollar and unusually high inflation are curbing Microsoft’s growth outlook. In early June, the company lowered guidance for fiscal Q4, which ended June 30.
Microsoft is also fighting against antitrust complaints in Europe over competition among cloud services providers, which could rein in the company’s growth even further.
Microsoft’s fiscal year (FY) ends on June 30. Analysts predict tepid performance by Microsoft’s standards: adjusted earnings per share (EPS) and revenue are both expected to grow, but at the slowest pace in recent quarters.
Investors will also focus on YOY revenue growth in Microsoft’s Azure and other cloud services. Together these represent a key component of Microsoft’s cloud computing business, offering a comprehensive set of services to developers, IT professionals, and enterprises.
Azure and other cloud services revenue is expected to grow substantially YOY, but also at a decelerating pace.
As mentioned above, investors will also focus on revenue growth in Azure and other cloud services. Azure is a cloud platform that offers developers, IT professionals, and enterprises a suite of tools and services that can be used for networking, storage, mobile, and web application services, AI, Internet of Things (IoT), and a range of other computing needs.
As of the end of the fourth quarter of 2021, Azure had a share of roughly 22% of the global cloud market, ranking it second behind Amazon Web Services.
The cloud computing market is growing quickly, and Azure is growing at a faster pace than Microsoft as a whole. However, Microsoft still has to compete with Amazon, Alphabet Inc.’s Google Cloud, and a variety of smaller rivals. This is especially important as work-from-home and hybrid work arrangements begun during the pandemic may have staying power, which could boost the market for cloud services.
Microsoft’s Azure and other cloud services business has grown at a substantial pace, more than tripling quarterly revenue in just three years. As revenue has increased, the pace of growth has slowed. In Q4 FY 2019, for example, Azure and cloud revenue grew by 63.0% YOY. Although sales have remained strong, they have failed to reach that same growth rate in the subsequent 11 reported quarters. Growth has significantly slowed in recent quarters, from 51.2% in Q4 FY 2021 to 44.7% in Q3 FY 2022. Now, analysts expect growth to further slow to 43.1% in Q4 FY 2022.
Microsoft Long (Buy)
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