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Both Microsoft and Google saw a slowdown in revenue growth and flagged issues in the advertising market.
Microsoft and Google parent company Alphabet have both fallen short of revenue expectations in their latest quarterly reports, citing macroeconomic factors as the cause for a growth slowdown.
Microsoft reported its slowest revenue growth since 2020 in its fourth quarter of the year, ending 30 June.
The tech giant’s revenue reached $51.87bn, an increase of 12pc year on year but below the $52.44bn expected by analysts, according to Refinitiv. The company’s earnings per share also fell short of expectations for the first time since 2016 at $2.23, CNBC reported.
Microsoft said “unfavourable foreign exchange rate movement” impacted its revenue and earnings for the quarter.
Other factors included extended production shutdowns in China and a “deteriorating PC market”, which both had a negative impact on Windows OEM revenue of more than $300m. OEM revenue was down 2pc compared to the same period last year.
The company’s gaming revenue decreased by $259m or 7pc, driven by a decline in Xbox content and hardware. Xbox saw an 11pc year-on-year revenue drop in terms of hardware and a 6pc drop for content and services.
Microsoft said reduced spending in the advertising market caused a $100m cut to revenue for LinkedIn and its search and news advertising categories. Still, LinkedIn revenue saw 26pc year-on-year growth.
Advertising is something that Microsoft will be focusing on with Netflix, as it was recently chosen to help the streaming company offer a cheaper subscription option that shows ads to users.
Elsewhere, Microsoft’s revenue from Azure and other cloud services saw 40pc growth last quarter, continuing to be a strong sector for the company. However, this is a slowdown from the 46pc year-on-year growth in Microsoft’s previous quarter and fell short of analyst’s expectations of 43.4pc, according to StreetAccount.
For the next quarter, Microsoft anticipates revenue between $49.25bn to $50.25bn.
Alphabet’s second quarter
Google’s parent company, Alphabet, also had some misses compared to analyst expectations for its second quarter ending 30 June.
The company’s revenue rose to $69.69bn for the quarter, an increase of 13pc year on year but falling slightly short of the $69.9bn expected, according to Refinitiv. Growth was 62pc in the same quarter last year.
Alphabet’s net income was $16bn compared to around $18.53bn in the same quarter last year. Earnings per share came in at $1.21, lower than analysts expectations of $1.28.
This marks the second quarter in a row that the company has missed expectations in terms of revenue and earnings per share.
Advertising revenue increased by just 12pc to $56.3bn, indicating reduced spending in the advertising market.
YouTube in particular felt this hit, with ad revenue rising by only 4.8pc in the quarter compared to an 84pc jump in the same period last year. YouTube’s ad revenue reached $7.34bn, below analyst expectations of $7.49bn and marking the slowest ad growth in more than two years.
Despite pressures in the ad market, Google Search ad revenue beat expectations by reaching $40.69bn.
Speaking to CNBC, Alphabet CFO Ruth Porat characterised the current outlook as one of “uncertainty in the global economic environment”.
Google Cloud revenue reached $6.28bn, up from $4.63bn in the same quarter last year. Still, it was short of analyst expectations and there was a loss of $858m for the quarter.
But Pat Grady, cloud analytics solution engineer at Adswerve, noted that Google Cloud’s strategy has been to lean into “industry-specific solutions” .
“As a result, we’ve seen Google growing market share faster than any other public cloud provider, and making up incredible ground against both Azure and AWS with each quarter,” Grady said.
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