Home Forex Microsoft: Still Trapped in Downstream

Microsoft: Still Trapped in Downstream

by SuperiorInvest

Microsoft Corp., an American multinational technology conglomerate that is currently the third largest company by market capitalization ($1,728K) that is actively engaged in the development and support of software, services, devices and solutions, will introduce its Q2 2023 financial results on 24Thursday January (Tuesday), after market closure.

Fig.1: Microsoft revenue segment (in billions of USD). Source: Extra

Microsoft came from three main segments. The first segment is the Productivity and Business Process segment, which includes products and services such as Office Commercial, Office Consumer, LinkedIn and Dynamic Business Solutions. The second segment is the Intelligent Cloud segment, which includes various server products and cloud services as well as enterprise services. The third segment is the multi-PC segment, which includes Windows, devices, games, search, and news. Intelligent cloud was the segment that generated the most revenue for the company. In 2022, segment sales revenue was $75.25Bwhich represents almost 38% of the total revenue.

Fig.2: Microsoft’s reported revenue versus Analyst Forecast. Source: CNN Business

in Q1 2023, Microsoft reported $50.1B sales revenue was down -3.59% from the previous quarter, but up 11% compared to the same period last fiscal year. Over the past 12 years, the company’s quarterly earnings have nearly tripled. In Microsoft’s latest announcement, it saw revenue growth in Intelligent Cloud (+20% (y/y)) and Productivity & Business Process (+15% (y/y)), while Personal Computing revenue fell slightly due to a decline in sales. in Windows OEM, Xbox content and services. Consensus estimates for sales revenue in the upcoming quarter were $53.1 billion, up nearly 6% from the previous quarter and up 2.7% from the same period last year.

Fig.3: Microsoft’s Reported EPS versus Analyst Forecast. Source: CNN Business

On the other hand, the EPS reported in Q1 2023 was $2.35up 5.38% from the previous quarter. Consensus estimates for the coming quarter remain flat $2.30. In general, despite macroeconomic headwinds, Microsoft managed to do well with last year’s overall sales $198.3 billionalmost up 18% a year ago; EPS were the last time $9.21profit over 15% fin 2021.

Like other major technology companies, Microsoft could not escape the fate of laying off nearly 5% (or 10,000) of its global workforce by the end of the third quarter of this year. Its layoffs could result in costs of approximately $1.2 billion in the short term, it consists of above-market severance, continued health care coverage, and continued stock awards for six months.

On the other hand, layoffs push tech companies into a more modest future. ChatGPT (Generative Pre-trained Transformer), a chatbot launched by OpenAI as early as November 2022, could be the new darling of IT giants (and probably in the near future for many companies of all sizes). It has the ability to generate human text, answer follow-up questions, challenge incorrect premises and reject inappropriate requests, providing a better user experience.

Microsoft has already invested around $3 billion in OpenAI since 2019 and is currently looking to invest another $10 billion with the expectation that it will become more competitive in the race with other big tech companies like Google. Last week, Microsoft added ChatGPT to its Azure cloud service to optimize its business operations. There is also a rumor thatThe company will also integrate ChatGPT into its suite of Office applications as well as its Bing search enginewhich further increases its competitiveness in the market.

On the downside, Microsoft still faces hurdles in acquiring Activision Blizzard. The company is said to be facing a lawsuit from the Federal Trade Commission in the US as well as another antitrust warning from the European Union. Failure to close the deal could be “disastrous,” as Microsoft management describes it, as it could lose a big piece of the gaming market pie.

Technical analysis:


Weekly chart displayed by #Microsoft (MSFT) stock price traded in a descending channel. It fell down 45% from the top ($349.62) in November 2021. On the daily chart, the 100-day SMA serves as the nearest dynamic resistance. A break above it will encourage bulls to continue testing resistance at $245.50followed $251.70. It coincides with the upper line of the descending channel. On the other hand, a reversal in price will bring support 221 dollars in focus. This is a FR of 50.0% extended from the November 2018 low to the November 2021 high. A successful close below this level may indicate a continuation of the bearish trend towards further support at 191 dollars and 148 dollars.

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Larince Zhang

Market analyst

Disclaimer: This material is provided as general marketing communication for informational purposes only and does not constitute independent investment research. Nothing in this communication contains or should be considered to contain investment advice or an investment recommendation or a solicitation to buy or sell any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or a reliable indicator of future performance. Users acknowledge that any investment in leveraged products is characterized by a degree of uncertainty and that any investment of this nature involves a high level of risk for which users are solely responsible and liable. We shall not be liable for any loss arising from any investment made based on the information provided in this communication. This communication may not be reproduced or redistributed without our prior written consent.

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