The stock market reaction (after hours, it must be said) to Microsoft’s quarterly results, with higher revenue and earnings, should make you wonder if you’ve wandered into the stock market version of Alice Through the Looking Glass.
The company’s shares fell almost 6% after hours (after easing 0.9% in regular trading ahead of the results release).
The figures were good—except for cloud business Azure, which investors quickly decided was a poor performance. So down went the shares, despite revenue being up 19% to $29 billion!
Microsoft’s overall revenue jumped 15% year over year in the fiscal fourth quarter, which ended on June 30. Net income, at $22.04 billion, was up from $20.08 billion in the June 2023 quarter.
All well and good, but the performance of the cloud business fell short of analyst forecasts (not weak, mind you, just the usual overestimation by analysts). Microsoft’s top segment, Intelligent Cloud, generated $28.52 billion in revenue, up 19% but below the $28.8 billion analysts expected.
It includes the Azure public cloud, Windows Server, Nuance, and GitHub. Revenue from Azure and other cloud services grew 29% during the quarter. Analysts had expected 31% growth. Microsoft’s Azure number hadn’t fallen short of market forecasts since 2022.
That was the same growth as Alphabet reported last week for its cloud business. Investors are now watching for the AWS figures in Thursday’s Amazon quarterly to make a comparison.
All three companies are investing heavily in AI, which needs The Cloud. Of the 29% growth for Azure and other cloud services, 8 points came from AI services, Microsoft said in its filing.
Microsoft doesn’t disclose revenue from the category in dollars, so with nothing more to go on, investors said, “Merde, sell, sell.”
Analysts ignored the better numbers from other parts of Microsoft. The Productivity and Business Processes unit (including Office software and LinkedIn) lifted revenue 11% to $20.32 billion, slightly above the $20.13 billion analysts forecast. And Microsoft’s More Personal Computing unit, with the Windows operating system, gaming, devices, and search advertising, reported $15.90 billion in revenue—up 14% and above the $15.49 billion forecast by analysts.