The Biggest Reason Microsoft's Earnings Report Was a Disappointment

At archetypal glance, Microsoft's (NASDAQ: MSFT) fiscal third-quarter results look strong. Revenue roseate 18% twelvemonth implicit twelvemonth to astir $83 billion. And operating income surged 20% twelvemonth implicit year, oregon 16% successful changeless currency.

So wherefore did the banal autumn astir 5% the adjacent time -- and wherefore is it inactive down astir 14% twelvemonth to day with shares astir $413 arsenic of this writing?

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A person look reveals 1 constituent I deliberation whitethorn beryllium weighing connected the stock. Two of the unreality computing and AI giant's most-watched maturation indicators -- the commercialized backlog and the header Azure maturation complaint -- failed to impressment successful fiscal Q3. Indeed, you could reason that they are showing signs of stalling. And that's a problem, fixed however overmuch absorption is present committing to spend.

A backlog that hardly moved (sequentially)

Microsoft's commercialized remaining show obligations (RPOs), oregon the dollar worth of contracted commercialized enactment that has not yet been recognized arsenic revenue, came successful astatine $627 cardinal successful the fiscal 3rd quarter. That fig is up 99% from a twelvemonth earlier -- a fig that, connected the surface, looks remarkable.

But the sequential representation is overmuch little impressive. Just 3 months earlier, successful fiscal Q2, Microsoft's commercialized backlog stood astatine $625 billion. So, the summation implicit the astir caller 4th was lone astir $2 cardinal -- coming aft an eye-opening $233 cardinal sequential summation the anterior quarter, erstwhile the fig jumped from $392 cardinal successful fiscal Q1.

Even much telling, Microsoft disclosed that excluding contributions from OpenAI, the creator of ChatGPT, its commercialized RPO grew 26% twelvemonth implicit year. That's a much grounded pace, and it arguably reflects the underlying concern amended than the monolithic header figure.

In different words, the caller surge successful Microsoft's backlog seems to person leaned heavy connected a single, precise ample lawsuit committedness alternatively than broad-based demand. And erstwhile the OpenAI publication laps into year-over-year comparisons, adjacent the year-over-year maturation complaint could dilatory substantially.

The institution besides disclosed that commercialized bookings, excluding the interaction from OpenAI, roseate conscionable 7%.

Azure's maturation complaint hardly budged -- and the terms tag keeps rising

The different crushed for caution is Microsoft's maturation successful "Azure and different unreality services," which fundamentally comprises the bundle giant's unreality computing business.