Microsoft CEO Satya Nadella speaks at the company’s annual shareholders meeting November 30, 2016 in Bellevue, Washington.
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Microsoft shares fell as much as 8% early Wednesday, a day after the company released its first-quarter results.
Microsoft beat expectations for revenue and earnings, but the stock has been pressured by weak guidance and cloud sales that missed expectations.
Microsoft’s Intelligent Cloud business segment, which includes public cloud Azure, Windows Server, SQL Server, Nuance and Enterprise Services, generated quarterly revenue of $20.33 billion, according to a company statement. That’s up 20%, but slightly below the consensus of $20.36 billion among analysts polled by StreetAccount.
As for guidance, Microsoft expects revenue of $52.35 billion to $53.35 billion for the fiscal second quarter, which translates to 2% growth at the midpoint of the range. Analysts polled by Refinitiv had expected revenue of $56.05 billion.
CEO Satya Nadella said in a conference call with analysts that cyclical trends are affecting Microsoft’s consumer business. CFO Amy Hood said weak demand for PCs in September will continue to hit Microsoft’s consumer segment, and expected device makers’ Windows revenue percentage to fall into the high 30s in the fiscal second quarter.
Undeterred by the weaker, cyclical segments, analysts at Goldman Sachs reiterated their buy rating for the stock. They said there is potential for a recovery in these segments and that companies will be more conservative in forecasting when faced with a challenging macroeconomic environment.
They believe there’s potential for sales to pick up again next year.
“We remain constructive on near-term dynamics as we see the company well-positioned to continue winning deals and growing its share of the wallet within its existing customer base, even in a slower growth environment,” they wrote in a note Tuesday .
The analysts at Morgan Stanley also remain convinced of Microsoft’s growth potential, despite the weak cyclical sectors and forecasts.
The strength of the company’s positioning for long-term growth trends “remains evident,” they said.
“Bottom line, while heavier cyclical weightings weigh down our FY23 EPS estimates, we remain firm on Microsoft’s longer-term secular growth story,” they said in a statement Wednesday.
Barclays analysts said Microsoft’s quarterly outlook came as a “negative surprise” to investors and that macroeconomic challenges are slowing migration to the cloud.
However, they said in a note on Wednesday that while “stocks are likely to react negatively in the near term,” the company’s management is still forecasting sales and earnings that “should ensure relative outperformance.”
Microsoft shares are down about 25% so far this year, while the S&P 500 stock index is down 19% over the same period.
– CNBC’s Jordan Novet and Michael Bloom contributed to this report.