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Microsoft Down 2.7% after Hours on Lower-than-Expected Revenue

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MSFT’s Q2 earnings

Technology giant Microsoft (MSFT) announced its second-quarter results on January 30 after market hours. The company managed to slightly surpass analysts’ adjusted EPS estimate of $1.09 by $0.01. Microsoft’s adjusted EPS of $1.1 was up 11% YoY from $0.96 in the second quarter of fiscal 2018.

On January 30, MSFT stock opened at $104.62 and slipped to $104.33 in the first two trading hours. However, the stock recovered later and touched its intra-day high of $106.38 in the last hour of trading. Although the company’s stock closed at $106.38, up 3.4% from the previous day’s close of $102.94, the stock lost 2.7% after hours on concerns of Microsoft’s revenue growth. Although Microsft disclosed that its Azure cloud business revenue grew 76% YoY, it refrained from reporting Azure’s revenue, which went up handsomely in recent years.

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Microsoft’s revenue miss

Microsoft’s second-quarter revenue of $32.5 billion slightly missed analyst estimates by 0.13%. On a YoY basis, revenue grew 12.3% from $28.9 billion in the second quarter of fiscal 2018. The company’s Productivity and Business Processes segment revenue was $10.1 billion, up 13% YoY.

The Intelligent Cloud segment’s revenue grew 20% YoY to $9.4 billion. The Server Products and Cloud Services segment’s revenue jumped 24% compared with Q2 2018. The major revenue growth driver was MSFT’s Azure public cloud revenue, which reported YoY growth of 76%. The More Personal Computing segment revenue was $13.0 billion, up 7% YoY in the second quarter of fiscal 2018.

Third quarter outlook

In the third quarter, Microsoft expects to report revenue between $29.4 billion and $30.1 billion. Amy Hood, Microsoft’s executive vice president and CFO, said, “For Q3, first, FX. With the stronger U.S. dollar and assuming the current rates remain stable, we now expect FX to decrease revenue and operating expense growth by approximately 2 points and decrease COGS growth by approximately 1 point. With the segments, we anticipate about 2 points of negative FX impact on revenue growth and Productivity and Business Processes and Intelligent Cloud and 1 point in More Personal Computing.”

Major tech (QQQ) giant International Business Machines (IBM), which released its Q4 2018 earnings on January 22, reported a 1% YoY revenue decline. Intel (INTC), which released fourth-quarter earnings on January 24, reported YoY revenue growth of 9%. Amazon (AMZN) is expected to report its fourth-quarter earnings on January 31 after markets close.

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