Just days after warning that customers were reducing spending, Microsoft will post its results for the December quarter late Tuesday. Microsoft stock has been depressed ahead of the report.
The earnings report comes after Microsoft announced major layoffs and a cost-cutting plan on Wednesday. The Redmond, Wash.-based software company said it is eliminating 10,000 jobs, or about 4.5% of its workforce.
Microsoft is taking a $1.2 billion charge in the just-finished quarter related to severance costs and other restructuring expenses. That will lower earnings by 12 cents a share. In addition to job cuts, Microsoft is reducing its office space and trimming its hardware business.
In a memo to employees, Chief Executive Satya Nadella said customers are pulling back on spending and looking "to do more with less." Also, he said many geographies worldwide are in a recession and others are anticipating one.
Taking Action To Preserve Margins
Microsoft took the painful, but necessary step to shore up its business amid a weak macroeconomic outlook, Wedbush Securities analyst Daniel Ives said in a note to clients.
"This is a rip-the-Band-Aid-off moment to preserve margins and cut costs in a softer macro, a strategy the Street will continue to applaud as management teams navigate this Category 5 near-term economic storm," Ives said. He rates Microsoft stock as outperform with a price target of 290.
On the stock market today, Microsoft stock rose 3.6% to close at 240.22. But that's a far cry from the stock's all-time high of 349.67, reached in November 2021.
Microsoft Stock Braces For Report
Analysts polled by FactSet expect Microsoft to earn $2.30 a share on sales of $53.1 billion in its fiscal second quarter. That would translate to a year-over-year decline of 7% in earnings and a 3% increase in revenue.
For the current quarter, Wall Street predicts earnings of $2.35 a share, up 6%. Analysts see sales of $52.6 billion, also up 6%.
Cowen analyst Derrick Wood maintained his outperform rating on Microsoft stock. But he lowered his price target to 280 from 285 on Thursday.
"Our checks point to softer demand trends for Azure and Windows, though we look for more stability in Office due to vendor consolidation," he said in a note.
Microsoft stock ranks third out of six stocks in IBD's Computer Software-Desktop industry group, according to IBD Stock Checkup. Further, it has a subpar IBD Composite Rating of 49 out of 99.
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
