Some buzzwords from MSFT’s financial results prepared remarks.
Currency: MSFT of course took a currency hit. The word “currency” was used 54 times in the prepared remarks.
Revenue took a 5% currency hit while Operating Expenses benefited by 3%. MSFT’s outlook anticipates a 5% Revenue hit and 3% OpEx benefit in Q2 and FY’23.
The USD has actually weakened vs. the GBP over the last month which will help MSFT Revenue vs. the Company’s outlook.
Advertising: MSFT sees weaker Advertising spend (as one would expect given the weak global macro backdrop). The word “advertising” was mentioned 11 times in Microsoft’s prepared remarks.
Inflation: The word “inflation” was not used once in the prepared remarks. Although an increase in Energy costs will cut into Azure’s Gross Margin.
“Energy costs” was mentioned 5 times in the prepared remarks within the context of higher energy costs.
Headcount and some investor positioning advice: 22% y-o-y headcount growth, 6% from acquisitions (Nuance and Xandr). MSFT has significant operating leverage and ought to have emphasized its ability to drive operating leverage within the prepared remarks rather than bury a remark about focusing on employee productivity in the very last paragraph. Services such as LinkedIn are entirely discretionary and MSFT could dramatically reduce headcount in that unit and others should customer demand further recede in 2023.
Azure is the one area where Microsoft can’t afford to curtail investment especially as it relates to AI & Machine Learning for fear of falling further behind Google – the AI leader.