Microsoft’s revenue rose 2% to $52.7 billion in its second fiscal quarter, just missing Wall Street’s expectations, and profits dropped 7% to $17.4 billion, not counting a special charge related to its layoffs — providing a glimpse of the growing economic uncertainty that the company cited in announcing the cutbacks last week.
The company reported strength in some of its products and services for businesses, led by a 22% increase in Microsoft Cloud revenue, to $27.1 billion. This category includes Microsoft Azure, Office 365 Commercial, the commercial portion of LinkedIn, and other cloud-related revenue.
However, other parts of Microsoft’s business experienced significant declines.
- Windows revenue fell 27% to $4.8 billion, including a decline of 39% in revenue from versions of Windows licensed to computer manufacturers. Microsoft blamed factors including continued PC market weakness.
- Microsoft gaming revenue, including Xbox, declined 12% to $4.7 billion. The company cited fewer new games from its own studios, and lower monetization of games made by third-party developers. An unspecified increase in Xbox Game Pass subscriptions wasn’t enough to overcome those declines.
- Devices revenue, including Microsoft Surface tablets and computers, fell 37% to $1.4 billion. The company cited the struggling PC market and “execution challenges on new product launches.”
Microsoft shares were initially up nearly 4% in after-hours trading following the report, before slipping about 1% below its price of $242.04 per share at the end of regular trading.
The decline during after-hours trading came after company gave its guidance for the fiscal third quarter, which added up to revenue of $50.5 billion to $51.5 billion.
In the middle of the range, that translates into an increase of 3% from the same quarter a year ago. At the high end, it would be about $1 billion below the $52.45 billion that had been expected by analysts.
Other notable numbers from the second quarter results:
- Revenue from search and news advertising was up 5%, but that compares with a consistent run of double-digit revenue growth stretching back nearly two years.
- Likewise, LinkedIn revenue growth fell below 10% for the first time in more than three years, increasing 9.8% to $3.9 billion for the quarter.
- Microsoft Teams monthly active users reached 280 million in the quarter, Microsoft CEO Satya Nadella said on the company’s earnings conference call. That’s up from 270 million a year ago.
- Nadella also said Microsoft’s revenue from its security technology business was $20 billion in the past year, which is up from $15 billion a year ago. This is the business unit run by Charlie Bell, the former Amazon Web Services exec.
The earnings report follows the company’s announcement last week that it’s cutting 10,000 jobs, or about 5% of its workforce, part of a wave of layoffs across the tech industry that started last fall.
Microsoft is the first big tech company to report earnings for the quarter ended Dec. 31, and its results are being closely watched by investors as a broader indication of corporate tech spending. Companies including Amazon and Google, Microsoft’s main rivals in the cloud, will report their results next week.
In conjunction with the job cuts, Microsoft said in advance of the earnings report that it was taking a charge of $1.2 billion for the quarter, or 12 cents a share, to account for severance packages for laid-off employees, the cost of exiting real estate leases, and unspecified changes in its hardware portfolio.
Not including that charge, Microsoft’s earnings were $2.32 per share, down 6%. On that same basis, analysts expected the company to report earnings of $2.30 per share, on revenue around $53 billion.
The report came a day after the company announced a new investment and expanded partnership with OpenAI, the artificial intelligence company behind popular generative AI tools including ChatGPT and Dall-E 2.
Microsoft’s HoloLens group suffered a setback this month when Congress rejected the company’s $400 million deal with the US Army to buy nearly 7,000 of the company’s augmented reality headsets, after soldiers testing them experienced headaches and nausea. Hololens was among the groups hit by job cuts.
Updated with guidance and other details from earnings call.
