Barring a big surprise, the sluggish economy will continue to take a toll on Microsoft’s overall growth in its financial report Tuesday afternoon for the three months ended March 31, the third quarter of the company’s fiscal year.
Microsoft may give some indication of the momentum from its steady stream of products and features integrating OpenAI’s GPT-4 and ChatGPT technologies, including Microsoft 365, Bing, Dynamics, GitHub, and security.
However, with many of those products still in testing phase, Microsoft’s larger financial payoff from those releases (and its “multibillion dollar” OpenAI investment) could still be years away.
In the meantime, analysts expect Microsoft to report revenue of slightly more than $51 billion for Q3 FY23, which translates into a second straight quarter of growth in the low single digits, about 3% vs. the same quarter a year ago.
Analysts’ expectations are consistent with the guidance that Microsoft gave in January for its three main divisions, which added up to total revenue of $50.5 billion to $51.5 billion for the March quarter.
The prediction compares with year-over-year quarterly revenue growth that peaked at more than 20% as Microsoft and the broader tech economy emerged from the pandemic with a head of steam 18 months ago. (See chart above.)
Microsoft’s profit growth is likewise expected to be essentially flat for the recent quarter. Analysts expect earnings of $2.23 per share, slightly above the $2.22 per share that Microsoft reported a year ago.
The main reason for the slower growth is a pullback in business technology budgets, as companies become more cautious in spending for the cloud services and software licenses that drive the bulk of Microsoft’s business.
The growth rate in Microsoft’s Azure cloud business will be closely watched for this reason. Analysts are divided in their predictions.
- UBS said on April 11 that it expects efforts by customers to optimize their cloud spending “will be deeper and last longer than most think.”
- Wedbush countered than sentiment a day later, saying its checks with customers “have been positive around overall cloud deal flow and momentum” for Microsoft.
Although Azure posted 38% growth overall in the December quarter, after adjusting for currency fluctuations, the rate was in the mid-30s at the end of the quarter, and was expected to drop another 4 to 5 points in the March quarter, CFO Amy Hood told financial analysts on the company’s second quarter conference call in January.
Microsoft CEO Satya Nadella told analysts on the January call that the company is focusing on helping customers optimize their cloud spending at the expense of short-growth and in the interest of its longer-term business.
Check back Tuesday afternoon, April 25, for coverage of Microsoft’s results.
