Microsoft and Google earnings take a hit amid economic downturn

26 Oct 2022

Image: © Yü Lan/

Microsoft was boosted by continued cloud growth, while Google missed revenue and earnings expectations for the third quarter in a row.

Microsoft and Google parent company Alphabet have seen a drop in their earnings this quarter, while Spotify’s profits were squeezed by slow ad growth.

Microsoft revenue in the first quarter of its fiscal year hit $50.1bn with year-on-year growth of 11pc. However, the company’s net income decreased by 14pc to $17.6bn.

Similar to the previous quarter, the software giant was boosted by its cloud business, where revenue was up 24pc to $25.7bn. This includes $20.3bn from its Intelligent Cloud division, which grew by 20pc. Azure and other cloud services saw revenue growth of 35pc.

Amy Hood, chief financial officer of Microsoft, said the company continues to see “healthy demand” across its commercial businesses, with the latest quarter having “solid bookings”.

Microsoft CEO and chair Satya Nadella also expressed a positive outlook. “In a world facing increasing headwinds, digital technology is the ultimate tailwind,” he said.

“In this environment, we’re focused on helping our customers do more with less, while investing in secular growth areas and managing our cost structure in a disciplined way.”

But the company is not immune to issues facing the global economy. In an interview with Bloomberg, Hood said Microsoft is paying more to deliver cloud computing services to customers in Europe, as rising energy costs impact profitability. Hood added that the company expects to pay $800m in extra energy costs this fiscal year.

The boost to cloud services also benefitted Xbox. Nadella said on the company’s earnings call that more than 20m people have streamed games using Xbox Cloud Gaming, which is double the 10m figure that Microsoft shared in April, The Verge reports. Xbox hardware revenue also saw growth of 13pc this quarter.

LinkedIn revenue saw 17pc year-on-year growth, while Microsoft’s search and news advertising revenue grew by 16pc, excluding traffic acquisition costs.

Advertising is something that Microsoft will be focusing on with Netflix, as it was chosen to help the streaming company offer a cheaper subscription option that shows ads to users.

Alphabet’s third quarter

Meanwhile, Google’s parent company fell short in many areas compared to analyst expectations, impacting its stock price.

Revenue for Alphabet’s third quarter was $69.09bn, which is higher than the $65.1bn in the same quarter last year. However, it was lower than the $70.58bn expected, according to Refinitiv estimates.

Net income took a sharp hit, with the company earning $13.9bn this quarter, compared to $18.9bn last year. Earnings per share for this quarter were $1.06, lower than the $1.25 expected.

This marks the third quarter in a row that the company has missed expectations in terms of revenue and earnings per share.

The tech giant’s advertising sales reached $54.5bn, which is slightly higher than last year’s $53.1bn but still short of analyst estimates.

The global advertising crunch continues to impact YouTube, as its ad revenue dropped by 1.9pc to $7.07bn. This was expected by analysts to grow by 3pc, reaching $7.42bn.

It is the first time that YouTube’s ad revenue has regressed since Alphabet began disclosing its results in 2019, AP reports.

Issues in advertising have been hitting many companies this year. In its latest earnings report, Spotify said its margins were hit due to “slower-than-forecast advertising growth given the challenging macro environment”.

Google Cloud exceeded expectations with revenue of $6.9bn this quarter, but its losses widened to $699m compared to $644m in the same quarter last year.

Alphabet and Google CEO Sundar Pichai said the tech group is sharpening its focus on a “clear set of product and business priorities”.

“Product announcements we’ve made in just the past month alone have shown that very clearly, including significant improvements to both Search and Cloud, powered by AI, and new ways to monetise YouTube Shorts,” Pichai said.

“We are focused on both investing responsibly for the long term and being responsive to the economic environment.”

The tech giant’s headcount from this quarter is 186,779, up from 150,028 in the same period last year. However, Pichai said on the company’s earnings call that headcount growth will be “significantly lower” this quarter.

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Leigh Mc Gowran is a journalist with Silicon Republic