Microsoft Stock Slips on Office 365 Growth Concerns

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Microsoft Office is one of the biggest companies in the business.

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Shares are under pressure on worries about how the company could be affected by slowing growth in the PC market. In particular, there are concerns about the future of the robust growth the software giant is generating for Office 365, its flagship productivity software.

Like Barrons reported earlier, new data from IDC shows that global PC shipments fell 5.1% from a year ago in the March quarter, following a surge in demand in the two years that has resulted from the Covid-19 pandemic. The numbers underscore other recent data suggesting consumer PC demand, in particular, will ease as more people return to work from offices.

UBS analyst Karl Keirstead pointed out in a research note on Monday that Microsoft’s Office 365 business (ticker: MSFT) is expected to achieve fiscal year revenue of $35.1 billion. of June 2022, after increasing by 19% to 21% in each of the past years. six quarters. Office is now Microsoft’s second largest business, after Azure, its cloud computing platform, he said.

The “Office 365 juggernaut is likely to begin a slight deceleration,” given the high penetration rate among business PC users and the diminishing work-from-home benefits provided by the pandemic, he wrote after speaking. with industry sources.

Keirstead wrote that the evidence suggests that Microsoft crashed

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efforts to compete with Microsoft with Google G Suite. “Our audits indicate that Google Cloud management has all but abandoned the goal of replacing Microsoft Office 365 in the enterprise segment and has instead shifted its focus to driving [Google Cloud’s] competitiveness against Azure,” he wrote.

Still, he said, Microsoft’s huge success in the office productivity market has reduced remaining growth opportunities. Its financial model now reflects Office 365 commercial revenue growth of 17.4% in fiscal year 2023, up from 19.1% previously.

The analyst said he was also cutting his estimates for a few other elements of Microsoft’s business, including Windows, to reflect “a higher risk of slower PC growth.” And he now sees a possibility that management’s guidance for the June quarter will fall short of Wall Street expectations. Its new forecast for June quarter revenue is $52.569 billion, down from a previous estimate of $53.226 billion, and below Street’s consensus call of $52.89 billion.

That said, Keirstead repeated his buy rating and $360 target price on Microsoft stock. The stock is likely to be seen as a safe haven in the event of a downturn in the economy later this year or early next year, he said.

Microsoft was down 3.3% to $287.33 on Monday afternoon.

Write to Eric J. Savitz at [email protected]

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