Update on Microsoft earnings:

It’s always worth waiting to hear the conference call when it comes to earnings, and this might have stung some investors if they were trading the Microsoft results on Tuesday evening. Although adjusted Earnings per Share (EPS) beat estimates, coming in at $2.32 vs. $2.30 expected, Microsoft shares are down some 1.5% on Wednesday’s pre-market trading.

The key points from Microsoft’s earnings include:

-       The 2% increase in its revenue is the lowest rate of revenue growth for 5 years.

-       Considering its growth rate is usually stable, this is concerning.

-       Execs expect revenues to come in below expectations for Q1 citing softening demand from corporate customers who over-invested during the pandemic.

-       Execs now expect revenue for Q1 to be $50.5bn - $51.5bn, about $1.5bn below analyst estimates, suggesting that the revenue decline is nowhere near over.

-       Cloud computing performed better than expected, with the Azure unit growing 31%, however, the risk is that companies will be forced to cut back on migrating work streams and digital assets to the cloud if the economy deteriorates further.

-       Added to this, if companies lay off workers at the same rate as some of the tech giants including Microsoft, then subscriptions for Microsoft Office could fall.

-       Microsoft itself predicts that Azure growth could fall by another 4-5% in the next 6 months.

-       Q4 shipments of personal computer ware slipped some 29%, which was expected, but highlights the extend of the pullback in consumer discretionary spending, and how it is impacting tech.

There is a lot of readjustment going on for Microsoft right now, as demand for big tech services normalises. On the plus side, operating profit margin is only expected to slip 1%, which, all things considered, is not that bad and could limit a sell off.

Things are also going from bad to worse for the tech giant, its Outlook and Teams systems are down across the world on Wednesday, we need to hear more about why this has happened before we can judge how this will impact the share price. If they can get it back up and running in the next few hours, the impact should be limited.

The problems for Microsoft are alarming, however, they are most likely cyclical. Thus, investors might eventually see this sell off as a buying opportunity.