Microsoft Corp. (MSFT) shares moved lower Tuesday ahead of the tech giant's third quarter earnings after the close of trading, with investors will likely focus once again on revenue growth rates for Azure, Microsoft's key cloud computing offering, to offset slowing demand and chip shortages in the global market for personal computers.
Microsoft said in late January that it expected intelligent cloud revenues to rise to between $18.75 billion and $19 billion over the three months ending in March, with Azure revenue growth to be up "sequentially in constant currency, driven by our Azure consumption business, with strong growth on a significant base."
Analysts are looking for a bottom line of $2.19 per share, a 12.3% improvement from last year, on revenues of just under $50 billion.
A slowing PC market, however, could hit both Microsoft's hardware division as well as its Windows software unit, with demand likely to retreat from the pandemic era work-from-home boom that covered the past two years.
"During and post Covid, the PC market experienced solid growth, helped by more dispersed personal, academic and professional use, including work from home," said BMO Capital Markets analyst Keith Bachman, who rates the group at "outperform' with a $340 price target.
"We believe that the Office franchise has little correlation to the PC market since we believe the Office business is largely driven by upgrades," Bachman said, noting "there could be some impact to Windows, and in particular the OEM non-Pro (consumer) segment of the market."
The group's gaming division is also likely to retreat from pandemic levels, thanks if part to declining users, chip shortages and supply chain disruptions, placing even more pressure on Azure and the broader cloud division.
The Federal Trade Commission will reportedly review its planned $69 billion takeover of video game maker Activision Blizzard (ATVI), amid concerns the deal will stifle competition in the $200 billion video game industry.
Microsoft will pay $95 a share for the Call of Duty and World of Warcraft gamemaker, the companies said revealed in February, in a deal that could see rivals scrambling to secure their place, as well as their scale, in the 3 billion player-strong market as companies to establish and monetize their subscriber bases ahead of their move into the metaverse.
The group is also likely to detail the hit it will take from suspending "all new sales" of products and services in Russia, following that country's invasion of Ukraine in late February, while "stopping many aspects of our business in Russia in compliance with governmental sanctions decision", adding that it will continue to work with the government of Ukraine to "help cybersecurity officials defend against Russian attacks".
"Given macro concerns, we are also encouraged by solid early large cap tech prints from SAP and IBM with limited European impact so far," said KeyBanc Capital analyst Michael Turits, who carries an 'overweight' rating with a $373 price target on the stock.
"We are cautious on Windows OEM and Gaming following weak PC shipment and GPU/gaming data (but) remain extremely bullish on the near- and long-term hyperscale cloud and integrated infrastructure stack, application development platform, and evolving business applications strategy," he added.
Microsoft shares were marked 2.4% lower in early Tuesday trading to change hands at $274.00 each, a move that would extend the stock's year-to-date decline to around 18.5% that would put it largely in-line with the Nasdaq Composite benchmark.
