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Why Is Microsoft (NASDAQ:MSFT) Stock Down 4% Today?

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MSFT stock - Why Is Microsoft (NASDAQ:MSFT) Stock Down 4% Today?

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Microsoft (NASDAQ:MSFT) stock is the leading name on social media after the company released mixed results for its fiscal second quarter and issued cautious guidance that pulled down the shares.

Two firms were divided on the outlook of MSFT stock in the wake of the company’s Q2 earnings report and its Q3 guidance.

MSFT Stock: Mixed Results

Microsoft’s Q2 earnings per share, excluding certain items, came in at $2.32, versus analysts’ average estimate of $2.31. The company’s revenue rose 1.9% versus the same period a year earlier to $52.7 billion, compared with analysts’ mean outlook of $53.15 billion. Microsoft’s quarterly sales increased at its slowest year-over-year rate since 2016.

On the positive side, the revenue of the company’s Productivity and Business Processes unit and its Intelligent Cloud Division jumped 13% YOY and 24% YOY, respectively, excluding currency fluctuations.

The Productivity and Businesses unit includes MSFT’s Office products and multiple “cloud-based” applications, while Intelligent Cloud focuses on its cloud services and server businesses.

The large increases in these units’ revenue suggest that a high percentage of companies globally are growing significantly which bodes well for the outlook of many software makers.

But the sales of its More Personal Computing division sank 16% YOY, excluding currency changes. Amid the work-from-home trend during the pandemic, many businesses and individuals purchased new PCs and laptops in order to work more efficiently from home. And consumers bought many new video games and needed better hardware to play them. With both those trends dissipating and consumers shifting more of their expenditures to “experiences,” Microsoft’s revenue from its Windows and video-game businesses tumbled, weighing on the top line of its More Personal Computing division.

Cautious Guidance and Analysts’ Divided Reactions

On the guidance front, Microsoft expects its sales for its current quarter to come in at $50.5 billion to $51.5 billion, slightly below analysts’ mean outlook of $52.43 billion. The More Personal Computing unit will be the main culprit once against, as MSFT estimates that the unit’s sales will slide 17% YOY this quarter.

However, the company did predict that the year-over-year revenue growth of its cloud computing business,  Azure, would drop four or five percentage points during the current quarter versus the previous period. In Q2, Azure’s revenue increased by about 35% YOY.

That outlook led BMO Capital to downgrade MSFT stock to “market perform” from “outperform” today. The firm predicted that MSFT stock would be “range bound… until Azure’s growth stabilizes.”

More bullish was Barclays, which said that MSFT’s Q2 results had surpassed expectations, while its profits are likely to stay “relatively stable” going forward. Although the firm was concerned about Azure’s projected deceleration, it kept an “overweight” rating on the name.

On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Larry Ramer has conducted research and written articles on U.S. stocks for 15 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been PLUG, XOM and solar stocks. You can reach him on Stocktwits at @larryramer.