Microsoft reports slowing Azure cloud revenue growth

Microsoft shares fell 1% in extended trading Tuesday after the software maker posted fiscal fourth-quarter earnings.

Here’s how the company fared:

• Earnings: $2.69 per share, versus $2.55 per share as expected by Refinitiv.
• Income: $56.19 billion, versus $55.47 billion as expected by Refinitiv.

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Revenue rose 8% year over year in the quarter ended June 30, according to a statement. Growth was below 10% for three consecutive quarters for the first time since 2017. Net income was $20.08 billion, compared with $16.74 billion in the prior quarter.

Microsoft’s Intelligent Cloud segment contributed $23.99 billion in revenue, up 15% and above the $23.79 billion consensus of analysts polled by StreetAccount. The device includes the Azure public cloud, SQL Server, Windows Server, Visual Studio, Nuance, GitHub and enterprise services.

Azure revenue grew 26% in the quarter, compared with 27% growth in the prior quarter. Analysts polled by CNBC and StreetAccount expected 25% growth from Azure, which competes with Amazon Web services and Google Cloud platform. Microsoft does not report Azure revenue in dollars. Google parent Alphabet said on Tuesday that revenue from its cloud products, which include Google Workspace productivity apps in addition to Google Cloud Platform, rose 28%.

Spurred by concerns about the deteriorating economy, organizations using cloud services from Microsoft, Amazon and Google have taken time to adjust their existing workloads to reduce costs over the past few months.

Microsoft’s Productivity and Business Process segment, which contains Office, LinkedIn and Dynamics productivity software, brought in $18.29 billion in revenue, up 10% from the StreetAccount consensus of $18.06 billion.

The company’s More Personal Computing business, which includes the Windows operating system, devices, games and search advertising, reported $13.91 billion in revenue. That figure represents a decline of about 4%, but still beats the StreetAccount consensus of $13.58 billion.

Sales of Windows licenses to device manufacturers fell 12%. Consumers and companies have rushed to buy computers since the start of Covid, making comparisons to the past year difficult.

Investors are eager for resolution of Microsoft’s deal to buy Activision Blizzard for nearly $69 billion, which was agreed in January 2022. Earlier this month, an appeals court rejected the Federal Trade Commission’s request to stop the deal. Activision shares rose above $92.50, close to the $95 Microsoft agreed to pay, reflecting optimism that the deal was close to closing.

Despite the after-hours move, Microsoft shares are up 44% year to date, while the S&P 500 is up 19%.

The company said its operating expenses rose about 2% in the quarter, partly due to a charge to pay a fine from the Irish Data Protection Commission after the body looked into whether the company’s LinkedIn unit breached the European Union’s General Data Protection Regulation.

Microsoft CEO Satya Nadella told employees in May that the company would not raise wages this year.

During the quarter, Microsoft built on its broad alliance with OpenAI to capitalize on renewed interest in artificial intelligence, following the November launch of the startup’s ChatGPT chatbot. Microsoft unveiled a chatbot powered in part by OpenAI language models to help workers make sense of their employers’ data, and told developers they’ll be able to create plugins that people can access through ChatGPT, the Bing search engine chatbot and other tools.

Excluding the after-hours move, Microsoft shares have gained 46% year to date, while the S&P 500 is up 19%.

Executives will discuss the results with analysts and issue guidance on a conference call beginning at 5:30 PM ET.

This is breaking news. Please check back for updates.

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