Microsoft Corp. will publish fiscal 2023 third-quarter financial results after the market close on Tuesday, April 25, 2023. The share price has soared this year in large part due to an AI boost and renewed confidence in its Bing search engine. An erratic macro environment can increase risks to some growth metrics and margins, particularly from the enterprise PC business.
In the most recent quarter (FY23 Q2), Microsoft delivered an overall revenue growth of 7%, which was largely due to a 16% decline in its PC business. Microsoft continued to show double digit growth in its more important enterprise technology and cloud computing business segments which generated a net margin of 31%.
The market predicts Microsoft will be the only Big Tech to see revenue growth this quarter, albeit at a smaller percentage. Revenue is expected to increase 3.6% over Microsoft’s business, which offers software and everyday vital services, which is proving more resilient in the current economic climate, despite declining sales of computers and other hardware. Microsoft’s Intelligent Cloud division is expected to report slower growth for the sixth straight quarter, with sales expected to rise by less than 15%, as businesses reduce spending. Azure is expected to maintain above 30% growth but also show fading momentum.
Productivity & Business Processes from Office and other software, may be a bright spot given analysts expect revenue and operating profit to increase for the first time in over a year and a half. Increased costs will lead to tighter margins and lower cash flow. Microsoft has started to control costs, after announcing 10,000 job cuts in January and a commitment to refocus on secular growth and long-term competitiveness will stabilize pressures.
General attention in new developments will be on AI development. Microsoft has stated they can compete on much lower margins to snatch business from their competitors. Meanwhile, Microsoft Corp. and Epic earlier in the week announced that they were expanding their long-term strategic collaboration to develop and integrate generative AI into healthcare by combining the scale and power of Azure OpenAI Service 1 with Epic’s industry-leading electronic health record (EHR) software. This collaboration expands on a long-term partnership, including enabling organizations to run Epic environments on the Microsoft Azure cloud platform. The joint innovations are focused on delivering a comprehensive suite of generative AI-powered solutions integrated with Epic’s EHR to increase productivity, enhance patient care, and enhance the financial integrity of healthcare systems globally.
According to Zacks Investment Research, based on the forecasts of 16 analysts, contextual EPS forecast for the quarter is $2.22. Reported EPS for the same quarter last year was $2.22 with a #3 (hold) stock rating. Meanwhile according to Trefis, Microsoft is likely to beat Revenue and Earnings expectations. MSFT could report 0.8% higher Revenue (+$410 m) and $2.25 EPS in 2023 Q3.
Technical Review
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The technology company’s share price in the first quarter recorded a growth of more than 30% if calculated from the low of January 2023 to the close of March, where the biggest increase occurred in March above 15%. Prices in April tend to be flatter below the August 2022 peak (294.17) and traded within a bound range between 281.63-292.07. An upside move could test 294.17 resistance and if there is a break against this price level, Microsoft price is projected for 300.00 round figure and FE100 (303.07) of 219.35-276.72 and 245.70 drawdown.
Meanwhile a move below the minor support at 281.63 could go down to test the support at 272.02 (52 day EMA) or up-trendline. The RSI has come down from the overbought zone and is currently at 57, while the MACD remains validating a rally in the buy zone, only the histogram shows flat interest and is slightly lower. Better results could increase interest, while disappointing reports could weaken prices.
Meanwhile, a number of global investment banking and wealth management firms such as Stifel Nicolaus increased their target price on Microsoft stock from $290.00 to $310.00 with a “buy” rating – Wedbush raised their target from $290.00 to $315.00 with an “outperform” rating. – Piper Sandler increased their target price from $247.00 to $290.00 and gave the rating “overweight” – Rosenblatt Securities lowered their target price from $285.00 to $275.00 and assigned a “buy” rating – Raymond James raised the target from $270.00 to $310.00 and gave the company an “outperforming” rating. According to MarketBeat, the company currently has a “Moderate Buy” consensus rating and an average target price of $298.29.
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Ady Phangestu
Market Analyst – HF Educational Office – Indonesia
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