Microsoft calms market fears with strong revenue growth forecast – Reuters | Region & Cash

A Microsoft logo is seen in Los Angeles, California, the United States, 7 November 2017. REUTERS/Lucy Nicholson

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July 26 (Reuters) – Microsoft Corp (MSFT.O) on Tuesday forecast revenue would grow double-digit this fiscal year, driven by demand for cloud computing services and a 5% rise in shares.

The bright outlook shows that Microsoft continues to benefit from the pandemic-driven shift to hybrid working models and comes at a time when investors are bracing for an economic downturn, inflation is raging, and consumers are cutting spending.

Bob O’Donnell, an analyst at TECHnalysis Research, said Microsoft’s forecast shows companies continue to move more businesses and work online despite negative economic trends.

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“I don’t think it’s just Microsoft,” he said of the outlook. “Microsoft is exceptionally well positioned because of the breadth of its businesses and the critical role its software and computing services play in business.”

Despite the upbeat guidance for the fiscal year beginning July 1, Microsoft’s fourth-quarter results were slightly down, impacted by a stronger dollar, declining PC sales and lower advertising spending.

Still, Microsoft had its best quarter for its cloud business, with record bookings for its cloud service called Azure, said Brett Iversen, Microsoft’s general manager of investor relations.

Azure growth was 40%, missing the 43% analyst target compiled by Visible Alpha. Adjusted for exchange rate factors, it rose by 46%. In its broader intelligent cloud division, revenue grew 20% to $20.9 billion, according to Refinitiv, beating Wall Street’s average target of $19.1 billion.

For the first quarter ending Sept. 30, its intelligent cloud division was forecast to generate revenue of $20.3 billion to $20.6 billion, with the high end slightly above analysts’ forecasts.

“We are seeing larger and longer-term commitments and won a record number of deals valued at over $100 million and over $1 billion this quarter,” said CEO Satya Nadella. “We have more data center regions than any other vendor and we will launch 10 regions over the next year.”

Microsoft is under pressure from a stronger dollar as it derives about half of its revenue outside the United States. That prompted the company to lower its earnings and revenue guidance for the fourth quarter in June. Shares of the Redmond, Wash.-based company are down about 25% this year. Continue reading

The US Dollar Index was up over 2% in the quarter to June and nearly 12% this year, compared to a 1% decline a year earlier in the same period.

Without the stronger dollar, the company’s 12% revenue growth would have been 4 percentage points higher year-over-year, Iversen told Reuters. Three key factors reduced fourth-quarter revenue by approximately $1 billion.

Exchange rates impacted sales by nearly $600 million. A slowdown in the PC market has cost Windows OEMs more than $300 million in revenue. And the slowdown in ad spending has eroded LinkedIn and Search and News’ ad revenue by over $100 million.

“With Microsoft’s size, they have a hard time not reflecting the broader economy,” said John Freeman, vice president of equity research at CFRA Research. “We have inflation and obviously that will dampen consumer demand.”

Softer consumer demand also impacted gaming revenue, which fell 7% year over year on a decline in Xbox hardware, content and services, the company said. It is expected to fall in the low to mid-single digits this quarter due to the decline in first-party content.

Microsoft reported revenue of $51.87 billion in the fourth quarter, compared to $46.15 billion a year earlier. According to Refinitiv IBES data, analysts on average had expected revenue of $52.44 billion.

Net income increased to $16.74 billion, or $2.23 per share, for the quarter ended June 30 from $16.46 billion, or $2.17 per share, in the prior year.

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Reporting by Akash Sriram in Bengaluru and Jane Lee in San Francisco; Edited by Peter Henderson and Lisa Shumaker

Our standards: The Thomson Reuters Trust Principles.

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