It’s hard to say Microsoft had a bad quarter in its Fiscal Q1 2023 (ended September 30, 2022). The company posted $17.6 billion in profit on $50.1 billion in revenue. Microsoft Cloud alone pulled in more than $25 billion in the quarter. And yet, a slowdown in the pace of Azure gains apparently has the market worried a key growth engine for the company might be losing steam.
On an earnings call, Microsoft CFO Amy Hood noted Azure and other cloud services revenue rose 35% during the recent quarter. But while this might sound like a good thing, she said the pace was about 1 percentage point lower than expected. This was due to “the continued moderation in Azure consumption growth, as we help customers optimize current workloads while they prioritize new workloads,” she said.
Besides being below expectations, the growth rate was also significantly lower than the 50% growth it posted in FQ1 2022 and even the 40% growth it achieved last quarter. In the current quarter, Hood said Microsoft revenue will continue to be driven by Azure, but added the company expects Azure revenue will be “lower by roughly 5 points on a constant currency basis.”
The stock market reacted poorly to Microsoft’s earnings, with the company’s share price down nearly 7% immediately following its report on Tuesday evening.
Hood, however, encouraged investors to focus on how the company views the 35% growth rate, “which is that it is still a very large growth rate with growth across all segments and with growth across all geos.”
“This is still the tailwind that helps customers solve problems. This is still the way to build growth and leverage in your business, and yet you still want to optimize your workloads, you still want to run them the most efficiently so that you can then make room for new workload growth,” she argued in response to an analyst question on the subject. “So, as I look forward, there is some inherent volatility to this number.”
In light of the tough economic environment, Microsoft said it plans to reduce some of its own spending. Specifically, like Alphabet, the company plans to slow hiring and engage in efforts internally to improve productivity and “do more with less,” Hood stated.