Early in June, Microsoft (MSFT) lowered its FQ4 (June quarter) guidance due to the U.S. Dollar’s strength against other currencies and its effect on exchange rates. Since then, as the Euro and Yen exchange rates have fallen to 20-year lows vs the US dollar, the FX headwinds have persisted.
BMO analyst Keith Bachman thinks they have actually increased since the update and will impact results in the June quarter (Microsoft will report on July 26) as well as the FY23 guidance. As such, Bachman has now reduced revenue forecasts for the next five quarters.
For the June quarter, Bachman’s year-over-year revenue growth forecast falls from 14.8% to 12.6% with the FX impact “worsening” from negative 2pts to negative 4 pts. For the upcoming fiscal year (FY23), the revenue growth outlook also drops – from 13.9% to 12.1% (FX impact weakening from less than negative 1pt to almost 3pts).
Further souring expectations and increasing the likelihood of headwinds for Windows OEM Non-Pro and Surface revenue in FY23, the analyst expects the PC market will “continue to weaken.”
“Working with our semiconductors team,” Bachman explained, “we think that recent total notebook ODM shipments have been lighter than expected, and channel checks have indicated that weakness has spread to the commercial market.
It’s not all bad, however. Even in a debilitating macro climate, Bachman expects Azure growth will “remain strong,” while the possibility of a recession won’t slow migration to the public cloud in a meaningful way. Additionally, over time, bigger infrastructure workloads will “increasingly migrate” to Azure. That said, if the macro environment continues to deteriorate, the “consumption” side of Azure (IaaS and PaaS solutions), which Bachman notes is larger and has historically grown faster than the per user side of Azure (Enterprise Mobility and Security), could be negatively impacted.
Bachman also thinks Microsoft boasts “both good offensive and defensive attributes,” and hails the “depth and breadth” of its portfolio. As such, the analyst sticks with an an Outperform (i.e., Buy) rating, although the negative developments require a lowered price target. The figure drops from $345 to $305, leaving room for 19% growth in the year ahead. (To watch Bachman’s track record, click here)
Overall, almost all of Bachman’s colleagues agree. The stock currently has a Strong Buy consensus rating, based on 28 Buys and 1 Hold. At $345.53, the average price target could yield returns of ~32%. (See Microsoft stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
