SANTA CLARA,CA/USA – FEBRUARY 1, 2014: Microsoft corporate building in Santa Clara, California. Microsoft is a multinational corporation that develops, supports and sells computer software and services.

Despite clocking a year-over-year rise of 12% in its quarterly revenue, tech giant Microsoft fell well below Wall Street expectations in its latest quarterly performance, as depicted in its Q4 FY22 earnings results. In the quarter ended June 30, 2022, the company pocketed $51.9 billion in revenue (the slowest year-over-year growth since 2020).

Overall performance in the quarter and the year

In Q4 FY22, the Redmond-headquartered behemoth clocked a year-over-year of 8% in operating income, which amounted to $20.5 billion, while its net income rose by 2% to reach $16.74 billion. Its diluted earnings per share (EPS) rose by 3% to reach $2.23.

These numbers, though seemingly impressive, fall short of what analysts had expected from Microsoft in the quarter. The expected quarterly revenue and EPS are $52.44 billion and $2.29 (per share) respectively. This also marks the first instance of Microsoft’s EPS falling short of the estimate since 2016.

Microsoft’s shares fell by nearly 3% today and are currently placed at $251.90.

For the entire fiscal year 2022, Microsoft’s revenue increased by 18% to be in touching distance of $200 billion ($198.3 billion), while its operating income rose by 19% to reach $83.4 billion. Its diluted EPS for the year came to $9.65 GAAP (a rise of 20%), while its net income rose by 19% to reach $72.7 billion GAAP.

Performance of Microsoft’s segments

Its Intelligent Cloud segment fell just short of revenue expectations as it increased by 20% to generate $20.91 billion in revenue. Azure and other cloud services, with a revenue growth of 40%, led the charge as revenue from server products and cloud services rose by 22%.

Its Productivity and Business Processes segment rose by 13% to clock $16.60 billion in revenue. Breaking it up, we find that revenue from LinkedIn rose by 26%, while Office 365 Commercial drove the growth of Office Commercial products and cloud services revenue to 9%. The company also clocked 59.7 million Microsoft 365 Consumer subscribers.

Despite clocking growths in several areas, Microsoft saw some of its core businesses take a hit. Its Xbox and Windows revenues, for example, fell by 6% and 2% respectively, while revenue from its Surface devices rose by 10% in the quarter. Its search and news advertising revenue (apart from traffic acquisition costs) rose by 18%. While revenue in the More Personal Computing segment rose by 2% to reach $14.4 billion.

Why did they fall below analyst expectations?

The company informed that a host of factors (“evolving macroeconomic conditions and other unforeseen items,” to be more precise) had affected its financial results for the quarter, which prevented it from reaching or exceeding analyst expectations.

These include the Russian invasion of Ukraine (which saw Microsoft scale down its Russian operations and incur $126 million in operating expenses), tough conditions in the PC market, unfavourable fluctuation of the foreign exchange rate, extended shutdowns in China, along with lesser expenditure on advertising.

Going forward, the company expects around $49.25-50.25 billion in revenue in Q1 FY23 (falling below analyst expectations of $51.49 billion) and a gross margin of 69.85%. “We continue to expect double digit revenue and operating income growth in constant currency and U.S. dollars,” Amy Hood, Microsoft’s finance chief, said on a conference call with analysts.