Microsoft ensnared by the ‘macroeconomic storm’ — here’s what analysts are saying

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Even mighty Microsoft isn’t immune to the economic slowdown continuing to wreck havoc on companies both large and small.

Microsoft stock tanked about 6% in premarket trading on Wednesday as the tech giant warned about slowing growth in its bread-and-butter cloud business. The company also posted a weak quarter in PCs as consumers hold back on big ticket purchases amid the economic uncertainty.

On the earnings call, Microsoft CFO Amy Hood noted that “the macroeconomic environment got more complicated” as the last quarter progressed.

Microsoft had the most visited ticker page on Yahoo Finance in the premarket, underscoring the investor angst over the company’s relatively lackluster quarterly performance.

Here’s what Wall Street analysts are saying about Microsoft’s mixed quarter:

Jefferies’ Brent Thill

Actions: Cut sales and profit estimates for this year and next

Rating and Price Target: Buy/$270

“This macroeconomic storm is even ensnaring one of the best stories in tech, with 1) Azure’s 1 percentage point [sales] miss and 5 percentage point deceleration guidance, 2) tepid 16% year over year constant currency bookings growth (vs F4Q 35%), 3) deterioration in PC, and 4) ad spend slowdown. Bright spots included maintained 10%+ constance currency revenue growth FY23 guidance and O365 Comm. resilience. Microsoft guided FY23 operating margin to decline 1 percentage point year over year, but we believe it has levers to stabilize EPS and reach $10.60+ in FY24, helping derive our $270 price target based on 25x [PE multiple] EPS.”

People look in the window at the Microsoft Pop Up store in Times Square on October 29, 2012. AFP PHOTO / TIMOTHY A. CLARY

Citi’s Tyler Radke

Actions: Cut sales and profit estimates for this year

Rating and Price Target: Buy/$282

“Despite top/bottom-line numbers meeting guidance, [fiscal] Q1 was not the cleanest quarter for Microsoft. Results featured another slight Azure miss, with the outlook implying a steeper deceleration path on cloud optimizations. Margins also faced new blemishes from weaker PC mix headwinds and higher electricity costs hitting Azure. Despite efforts to offset these (slower hiring), margins were still cut ~100 basis points for the full year. While a disappointment, nothing looks structurally broken here and we see Microsoft showing resiliency, growing revenue and [operating] income double-digits… amidst a year of challenges from tough comps, weaker macro, inflation/energy costs and slowing IT budgets. We think Microsoft can continue to leverage top-tier competitive positions and customer relationships in some of the largest markets in software to continue to drive outsized returns vs. megacap tech/S&P 500 peers and maintain our Buy despite taking revenue numbers down.”

Evercore ISI’s Kirk Materne

Actions: Cut sales and profit estimates for this year and next

Rating and Price Target: Outperform/$300

“While we understand that any ‘wobble’ in Azure is going to get amplified in this market, it is worth remembering that Azure is still showing rapid growth at scale, taking share in a huge cloud market, and the weakness was largely due to slower consumption in the small business market and a slowdown in deals related to per-seat offerings (EMS) – this isn’t a competitive (or largely enterprise) issue. Essentially, we do not believe that the Azure results or guide should be viewed as a ‘thesis breaker’ as far as the commercial business is concerned – it is still expected to grow ~20% in constant currency this year. Further, when coupled with another strong quarter from the commercial O365 business (+17%), we believe that the enterprise side of the business remains solid – despite the macro – heading into CY23. Finally, while Microsoft pulled down its [operating] margin target slightly (100 basis points) given the weakness in PCs and higher energy costs, we believe there is little doubt that Microsoft is going to manage headcount and investments in order to preserve EPS and cash flow. As such, we believe our revised estimates have room for upside on the cost side.”

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

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