Why is Everyone Talking About Microsoft? Following dismal quarterly earnings and developments about the acquisition of Activision Blizzard, the company has gained media attention.
At a Glance
- Following the release of its quarterly earnings on October 25, Microsoft’s shares lost a few points.
- Some investors were alarmed by Azure’s slowing growth. Azure is its cloud computing division.
- The executive in charge of Xbox at the corporation has sworn to never take the “Call of Duty” video game from PlayStation.
Microsoft (MSFT -3.54%) shares have lost a lot of momentum in 2022 because of short-term challenges like most tech stocks do. Rising inflation and its effects on consumer spending have hurt the company.
As a result, during the past few months, the Windows firm has been the subject of numerous stories, and a recent financial report has encouraged even more scrutiny.
As investors wait on pins and needles to learn whether it’s proposed acquisition of Activision Blizzard (ATVI -0.89%) for a historic $68.7 billion will be approved by regulators, the deal has also kept the media busy.
Current and potential investors would be advised to keep track of any new developments regarding it, which has a market worth of $1.74 trillion and is home to dominant brands like Windows, Office, and Xbox.
A questionable quarter
On October 25, Microsoft released its first-quarter financial results for its fiscal 2023, and they were a bit of a mixed bag. Wall Street was not pleased, as the company’s stock fell 7.7% during the following day.
The stalling growth of it’s Azure cloud computing technology was what most deterred investors. One of the company’s fastest-growing divisions has been the cloud service, which had a 50% increase in sales in the first quarter of 2022. Investors are increasingly weary though after seeing a reduced 40% increase in Q4 and now 35% in Q1 2023.
Furthermore, the fact that Microsoft’s Intelligent Cloud division, which predominantly generates revenue from Azure, accounted for 40.5% of the business’s revenue in its most recent quarter has just added fuel to the fire.
The cloud computing market, however, is anticipated to increase at a compound annual growth rate of 17.9% between 2022 and 2028, according to Fortune Business Insights. Microsoft is in a strong position to profit from the expanding business despite any short-term losses given that Azure accounts for 21% of that market, the second-largest share behind Amazon Web Services.
Despite Azure’s disappointing growth, there were positive aspects of Microsoft’s quarterly report.
The company’s overall revenue increased by 11% year over year to $50.1 billion, exceeding analysts’ forecasts of $49.6 billion. Productivity and Business Processes, Microsoft’s second-largest division, which includes revenue from services like Office and LinkedIn, also witnessed a 9% increase and generated $16.4 billion, or 32.8% of Q1 2023 sales.
Acquisition uncertainty
In addition to reporting quarterly earnings, Microsoft has been in the news practically every week as a result of its announced in January plan to acquire Activision Blizzard. Due to the high expense, the corporation had to receive regulatory approval from organizations all around the world before it could proceed.
Activision is the fourth most valuable video game firm in the world with a $56.97 billion market valuation, after only Sony (SONY -3.57%), Tencent, and Microsoft. It has become a dominant player in the sector, mostly as a result of its hugely successful gaming franchise, Call of Duty. The series, which is a significant earner on both Microsoft’s Xbox and Sony’s PlayStation, reached $30 billion in total sales in June.
As a result, Microsoft gained attention once more on October 31 when Xbox CEO Phil Spencer announced his intention to continue developing Call of Duty games for PlayStation consoles indefinitely.
Some worries having one console firm entirely own Call of Duty would give it too much power over the market when news of the Microsoft-Activision transaction initially broke. Spencer’s assertion that there are no intentions to ever make the series exclusive to Xbox is therefore very credible.
Additionally, Microsoft intends to buy Activision for $95 per share in an all-cash deal. Activision’s recent stock price of $72.80 translates into a return of 30.4%, which has potential investors excited about the likelihood that the acquisition will be approved by regulators.
Therefore, the media interpreted the sale of 3.7 million Activision shares by an unidentified investor on October 19 as a lack of trust in the acquisition.
However, Microsoft has remained confident that its acquisition of Activision will succeed, with Spencer expressing his “positive feelings” about the development in late August.
Wall Street tycoon Warren Buffett, whose holding company Berkshire Hathaway is in charge of 68.4 million Activision shares worth $4.9 billion or 8.7% of the corporation, expresses similar concerns.
Despite a sell-off in 2022, it has had its stock climb 175.8% in the last five years as one of the most innovative and significant corporations in the world. The firm provides investors with a robust, varied portfolio of brands that are market leaders. Even if there can be brief losses shortly, Microsoft is a great long-term investment.
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Conclusion
Like most IT firms, Microsoft (MSFT -3.54%) shares have lost a lot of momentum in 2022 due to immediate problems. The company has suffered as a result of rising inflation and its effects on consumer expenditure.
Numerous articles have been written about the corporation, and a recent financial report has led to an even greater investigation. Analyst expectations were surpassed as the company’s overall revenue climbed by 11% to $50.1 billion. Activision will be purchased by Microsoft for $95 per share in an all-cash transaction.
Potential investors are enthusiastic about the chance that the acquisition will be allowed by regulators as seen by the latest stock price of $72.80 for Activision, which equates to a return of 30.4%. One of the most influential and inventive companies in the world is Microsoft.
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