A clear theme dominates Microsoft’s earnings call

Microsoft got some high-fives from Wall Street on Tuesday night when quarterly Azure sales Analysts’ best estimates in the context of overall earnings beat. Shares of Microsoft were initially up 4% in after-hours trading.

Then there’s the earnings call, where one obvious theme emerges: caution.

While Microsoft executives appreciate the long-term impact of the partnership with the maker of OpenAI ChatGPT, the income call is greatly reduced from an economic point of view – and broadly speaking, a demand point of view. Melodies have gone a long way in explaining why Microsoft laid off 10,000 employees last week in a major cost-cutting exercise.

Microsoft stock was mostly flat in premarket trading on Wednesday around 5:45 a.m.

“We are downgrading FY23 growth from 7.1% to 4.8% y/y (10%+ year-on-year vs. Macroeconomics continues to weigh on results with tough comparisons and 5 year slowest commercial booking growth,” said Jefferies analyst. Brent Thill wrote in a customer note.

Yahoo Finance scrutinized Microsoft’s earnings call for all the big tech giant’s clues about the state of the global economy.

Here’s what we found (our emphasis):

  • As I meet with clients and partners, a few things become increasingly clear. Just as we’ve seen customers accelerate their digital spending during the pandemic, we’re now seeing them optimize that spend. Also, Institutions are acting cautiously with macroeconomic uncertainty.

  • So the question is, how many times is overall economic growth adjusted for inflation? So that’s how I look at it. So I think there are two things that we see – we’ve commented on that even in the last quarter and even in the outlook, that’s what customer doing is what they have accelerated during the pandemic. They are making sure they are getting the most value out of it or optimizing it. And then also a little more cautious…with macroeconomic difficulties outside the market.

  • Honestly, you’re all the better readers of the market on what’s going on out there. We can tell you what we see. What we see is optimization and some conservative approach to new workloads and that will turn around, but we basically believe that on a long-term basis, as a percentage of GDP, spending on technology will go up.

A participant walks past a Microsoft board during the World Economic Forum (WEF) annual meeting in Davos on January 18, 2023. (Photo by Fabrice COFFRINI/AFP) (Photo by FABRICE COFFRINI/AFP via Getty Images)

A participant walks past a Microsoft board during the World Economic Forum (WEF) annual meeting in Davos on January 18, 2023. (Photo by Fabrice COFFRINI/AFP) (Photo by FABRICE COFFRINI/AFP via Getty Images)

Microsoft CFO Amy Hood

  • However, as you heard from Satya, We see customers being cautious in this environment, and we see weak results through December. We see moderate consumption growth in Azure and lower-than-expected growth in new business across Office commercial products. 365, EMS, and standalone Windows are sold outside of the Microsoft 365 product suite. From a geographic perspective, we’ve seen strong enforcement in many regions of the world. However, Performance in the US was weaker than expected.

  • LinkedIn and search will be affected because advertising market spending is still a bit cautious. In our Trading business, we expect the business trends we saw at the end of December to continue in Q3. While Customers are more cautious in spendingwe also have the opportunity to improve our operations, building on our strong position in global growth markets.

  • For LinkedIn, we expect average single-digit revenue growth with continued strong engagement on the platform, albeit impacted by previously noted advertising trends. and Recruitment slows downespecially in the tech industry, where we have a lot of exposure.

Brian Sozzi is an editor-in-chief and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and more LinkedIn.

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