Will Microsoft (NASDAQ:MSFT) demonstrate powerful growth in 2023? Anything is possible, but there isn’t strong evidence that MSFT stock will be a big winner this year. Both the recent financial data and Microsoft’s outlook for the future suggest that the company could disappoint hope-fueled investors.
The outlook is uncertain as Microsoft plans to cut 10,000 jobs, roughly 5% of the company’s workforce. At the same time, Microsoft’s commitment to cost reduction might be called into question. There’s a hefty price to pay, as the company’s job cuts will reportedly result in a $1.2 billion charge in Microsoft’s second fiscal quarter.
Plus, a costly workforce reduction isn’t Microsoft’s only concern. So, before you jump into the long side of the trade, take a close look at Microsoft’s less-than-stellar outlook for the near future.
Microsoft’s CFO Issues a Warning
You know it’s probably not a good sign when a company’s executive uses words like “caution” and “moderating consumption growth.” Regarding Microsoft’s financial results for the company’s second quarter of fiscal 2023, the company’s CFO, Amy Hood, made statements that investors need to pay attention to.
Hood acknowledged that she’s “seeing customers exercise caution,” which is presumably a warning about a potential slowdown in purchases in Microsoft’s products and services. This, Hood added, led to “moderating consumption growth in Azure and lower-than-expected growth in new business” in December.
Hood’s commentary doesn’t get any better from there. Apparently, she anticipates the “business trends that we saw at the end of December” to continue into the current quarter. Obviously, those business trends weren’t positive, so Hood’s warning should be duly noted.
Fiscal Results and Outlook Don’t Bode Well for MSFT Stock
Overall, Microsoft’s Q2 FY2023 isn’t encouraging. On a year-over-year basis, the company’s revenue of $52.7 billion only grew 2% and fell short of Wall Street’s consensus estimate of $53.1 billion.
Using GAAP measurements, Microsoft’s operating income fell 8%. Moreover, the company’s net income declined by 12%, and its diluted earnings per share decreased by 11%. So, there’s not really anything for Microsoft to brag about here.
What’s the short-term outlook for Microsoft, then? It’s not very exciting, as the company expects to generate current-quarter revenue of $50.5 billion to $51.5 billion. This range falls below Wall Street’s consensus estimate of $52.4 billion. Apparently, Microsoft’s management doesn’t expect anything spectacular to happen in early 2023.
What You Can Do Now
None of this is to suggest that Microsoft is a dying business. Yet, the company’s layoffs might indicate a red flag. Also, it’s not a great sign that Microsoft’s CEO is talking about customers exercising “caution.”
On top of all that, prospective investors should take a hard look at Microsoft’s recently released financial data. The results aren’t anything to write home about.
Indeed, some of the stats indicate deceleration, and Microsoft’s forward revenue guidance isn’t very optimistic. Therefore, investors can choose to avoid MSFT stock for the time being, and think about revisiting it later this year.
On the date of publication, Louis Navellier had a long position in MSFT. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.
The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.