Microsoft released its Q4 earnings for fiscal year 2024 on July 30, showing strong overall financial performance but disappointing some investors due to lower-than-expected cloud revenue growth. Key highlights included a 15% increase in revenue to $64.7 billion and a 10% rise in net income to $22 billion. The Productivity and Business Processes segment saw an 11% revenue increase, Intelligent Cloud rose by 19%, and More Personal Computing grew by 14%. Despite beating overall revenue and earnings expectations, the Intelligent Cloud segment’s $28.5 billion revenue fell short of forecasts, leading to a 6% drop in Microsoft’s stock price in after-hours trading. CEO Satya Nadella emphasized the company’s commitment to AI innovation, while CFO Amy Hood highlighted strong bookings and cloud revenue. The market’s reaction highlighted the high expectations for cloud growth and the sensitivity of Microsoft’s stock performance to this metric.

Key Financial Highlights

Revenue and Earnings Growth

Microsoft reported a revenue of $64.7 billion for Q4 2024, marking a 15% increase year-over-year, or 16% in constant currency. Operating income rose to $27.9 billion, up 15% year-over-year (16% in constant currency), while net income reached $22.0 billion, a 10% increase year-over-year (11% in constant currency). Earnings per shareEarnings per share (EPS) is a fundamental financial metric that provides valuable insights into a company's profitability. This widely used indicator helps investors and analysts g... More (EPS) stood at $2.95, reflecting a 10% rise year-over-year (11% in constant currency).

Segment Performance

Productivity and Business Processes

The Productivity and Business Processes segment reported revenue of $20.3 billion, representing an 11% increase year-over-year (12% in constant currency). This growth was driven by notable areas such as Office 365 Commercial and Dynamics 365.

Intelligent Cloud

The Intelligent Cloud segment generated $28.5 billion in revenue, up 19% year-over-year (20% in constant currency). Azure and other cloud services saw a 29% growth year-over-year (30% in constant currency), though this was slightly below analyst expectations.

More Personal Computing

Revenue in the More Personal Computing segment reached $15.9 billion, a 14% increase year-over-year (15% in constant currency). A significant highlight was the 61% increase in Xbox content and services revenue, largely due to the Activision acquisition.

Market Reaction

Despite Microsoft’s strong overall financial performance, the lower-than-expected cloud revenue growth led to a sharp decline in its stock price. The Intelligent Cloud segment’s revenue of $28.5 billion fell slightly short of the anticipated $28.7 billion. As a result, Microsoft’s stock dropped over 6% in after-hours trading.

Strategic Insights

Leadership Commentary

CEO Satya Nadella emphasized Microsoft’s ongoing commitment to innovation and its leading role in the AI era. CFO Amy Hood highlighted the company’s record bookings and strong cloud revenue. However, the market’s reaction to the cloud revenue shortfall underscores the high expectations investors have for this critical growth area.

Market Sensitivity

The high valuation and expectations for Microsoft’s stock mean that any shortfall in key growth areas, such as cloud services, can lead to significant sell-offs. The broader tech sector is particularly sensitive to growth metrics in cloud computing and AI, contributing to declines in other major tech stocks following Microsoft’s earnings report.

Reasons Behind the Stock Decline

Disappointing Cloud Revenue Growth

The primary reason for the stock decline was the disappointing growth in Azure and other cloud services. Revenue growth of 29% year-over-year fell short of the anticipated 31% growth, overshadowing Microsoft’s otherwise strong financial performance.

High Market Expectations

Microsoft’s stock was trading at a high price-to-earningsThe price-to-earnings ratio, often abbreviated as P/E ratio, is a fundamental metric used by investors and analysts to evaluate the relative value of a company's shares in the stoc... More (P/E) ratio, reflecting significant growth expectations from investors. Even a minor miss in key growth areas like cloud services can prompt a sharp sell-off as investors reassess the company’s growth prospects.

Broader Market Sentiment

The broader tech sector’s sensitivity to growth metrics, especially in cloud computing and AI, meant that Microsoft’s results had a ripple effect. Disappointing results in these areas can lead to broader sell-offs in tech stocks, as observed following Microsoft’s earnings announcement.

Investor Reaction

Immediate Market Reaction

Despite beating overall revenue and earnings expectations, the immediate market reaction to Microsoft’s cloud revenue miss was negative. This led to a significant drop in the company’s stock price, falling over 6% in after-hours trading.

Insights

1. Microsoft’s overall financial health is robust, with significant growth in key segments.
2. Cloud revenue growth, though substantial, missed market expectations.
3. The stock price reaction underscores the high market sensitivity to cloud growth metrics.
4. Leadership remains focused on AI innovation and cloud services.

The Essence (80/20)

Core Topics:

1. Financial Performance: Detailed metrics show strong year-over-year growth in revenue, operating income, net income, and EPS.
2. Segment Performance: Each business segment showed growth, with notable increases in cloud services and gaming.
3. Market Reaction: Despite overall strong results, the stock price fell due to slightly lower-than-expected cloud revenue growth.
4. Strategic Focus: Emphasis on innovation in AI and cloud services, as well as maintaining strong bookings and revenue in these areas.

The Guerilla Stock Trading Action Plan

Investor Communication: Clearly communicate growth strategies and market positioning to mitigate adverse stock price reactions.

Financial Review: Analyze each segment’s performance for investment decisions.

Market Expectations: Manage and align growth expectations, particularly in high-stakes segments like cloud services.

Strategic Investments: Continue investing in AI and cloud technologies to meet and exceed market expectations.

Blind Spots and Remediations

High Market Sensitivity to Cloud Metrics

Blind Spot: The stock price is highly sensitive to even minor deviations in cloud revenue growth forecasts.
Remediation: Improve investor communication by providing detailed guidance and transparency on cloud growth strategies and potential risks. Implement more conservative forecast estimates to set realistic expectations.

Dependence on High-Growth Segments

Blind Spot: Over-reliance on high-growth segments like Azure could pose risks if these segments underperform.
Remediation: Diversify revenue streams by increasing investments in other segments such as gaming, productivity software, and emerging technologies to reduce reliance on any single segment.

Broader Tech Sector Volatility

Blind Spot: Microsoft’s stock can be affected by broader market trends and sentiment in the tech sector, not just its own performance.
Remediation: Hedge against broader market volatility by maintaining a balanced portfolio of investments, including non-tech sectors. Enhance resilience by focusing on long-term strategic goals and innovation rather than short-term market reactions.

Innovation and R&D Execution Risks

Blind Spot: Risks associated with the execution of innovation and R&D initiatives, especially in rapidly evolving fields like AI.
Remediation: Strengthen project management and oversight for R&D initiatives. Increase collaboration with leading research institutions and invest in talent acquisition to ensure the successful execution of innovative projects.

MSFT Technical Analysis Daily Time Frame

The chart shows Microsoft Corp (MSFT) stock performance, including price, volume, and several technical indicators. Here is the analysis:

Trend Analysis:
The stock has been in a downtrend since mid-July, failing to break above the 50-day moving average (442.30) and currently trading below both the 50-day and 200-day moving averages (405.50). This suggests a bearish sentiment in the short to medium term.

Support and Resistance:
Support level: Approximately 405 (200-day moving average)
Resistance level: Approximately 442 (50-day moving average)

Volume:
Volume has been relatively high during the recent downtrend, indicating strong selling pressure. The On Balance VolumeThe On Balance Volume indicator (OBV) is a technical analysis tool used to measure the flow of money into and out of a security over a specified period of time. It is a cumulative ... More (OBV) is also declining, supporting the bearish trend.

Relative Strength IndexIn the world of technical analysis, the Relative Strength Index (RSI) stands as a cornerstone tool for traders seeking insights into market momentum. Developed by J. Welles Wilder ... More (RSI):
The RSI is at 37.08, indicating that the stock is approaching oversold territory but has not yet reached it. This suggests potential for further downside before a possible reversal.

Stochastic RSIIn the realm of technical analysis, the Stochastic RSI (StochRSI) emerges as a powerful tool for traders seeking to navigate market dynamics with precision. Developed by Tushar S. ... More:
The Stochastic RSI is at 0.123, in oversold territory, indicating a possible short-term bounce or consolidation before the downtrend continues.

Chaikin OscillatorNamed after its creator Marc Chaikin, the Chaikin Oscillator stands as a formidable tool in the arsenal of technical analysts. This oscillator is designed to measure the accumulati... More:
The Chaikin Oscillator is at -13.04, showing strong negative momentum, further confirming the bearish sentiment.

MACDThe MACD indicator is essentially a momentum indicator that shows the relationship between two different moving averages of price. The MACD is the difference between the 12-period ... More:
The MACD line is at -7.99, and the signal line is at -11.09, both in negative territory. The histogram shows increasing bearish momentum, indicating that the downtrend is likely to continue.

Time-Frame Signals:
3 months: Sell
Given the current downtrend, high volume on down days, and bearish technical indicators, the stock is likely to continue its downward movement in the next three months.

6 months: Hold
There may be potential for consolidation or a moderate rebound within the next six months, but the overall sentiment remains cautious.

12 months: Buy
Over a longer period, there is potential for recovery as the stock could reach oversold levels and attract buyers, assuming no significant negative changes in fundamentals.

In conclusion, the overall analysis indicates a bearish short-term outlook for Microsoft Corp, with potential for recovery in the longer term.

MSFT Technical Analysis Weekly Time Frame

The weekly chart of Microsoft Corp (MSFT) presents several key technical indicators:

Price Trend: The stock has shown a general upward trend since late 2022, with a noticeable dip in recent weeks. Currently, it is priced at $422.92.

Volume: There is a high volume with 8.39M shares traded, indicating significant market interest. Spikes in volume often precede large price moves, either upward or downward.

Relative Strength Index (RSI): The RSI stands at 51.26, which is in the neutral zone. It suggests that the stock is neither overbought nor oversold at the moment.

On-Balance Volume (OBV): The OBV shows a steady increase, reflecting a strong accumulation phase. A rising OBV typically supports the upward price movement.

Stochastic RSI: The Stochastic RSI is at 0.000, indicating a potential oversold condition. This could imply a buying opportunity if the price starts to recover.

Chaikin Oscillator: The Chaikin Oscillator is at -349,404, indicating weak buying pressure. It suggests potential for continued bearish momentum.

MACD (Moving Average Convergence Divergence): The MACD line (9.94) is above the signal line (2.02), indicating a bullish crossover. However, the recent histogram suggests weakening momentum.

Time-Frame Signals:

3 Months: Hold. Given the mixed signals, a wait-and-see approach might be prudent as the market could be in a consolidation phase.
6 Months: Buy. The general uptrend and positive OBV suggest potential for recovery and growth.
12 Months: Buy. The long-term upward trend and accumulation phase support a positive outlook.
Past performance is not an indication of future results. This article should not be considered as investment advice. Always conduct your own research and consider consulting with a financial advisor before making any investment decisions. 🧡

Looking Ahead

Microsoft’s Q4 2024 earnings report showcased the company’s strong financial health and growth across most segments, particularly in cloud services and gaming. However, the slight miss in cloud revenue growth expectations led to a significant decline in its stock price. This reaction highlights the high expectations placed on Microsoft’s cloud business and the sensitivity of its stock to any perceived weaknesses in this critical area. As Microsoft continues to innovate and lead in the AI era, investor focus will likely remain on its cloud growth and ability to meet high market expectations.

Microsoft Q4 2024 Earnings FAQ