Microsoft shares fell 1% in extended trading on Tuesday after the software maker announced fourth-quarter fiscal results that fell short of Wall Street consensus.

Here’s how the company did it:

• Earnings: $2.23 per share, adjusted, versus $2.29 per share as expected by analysts, according to Refinitiv.
• Revenue: $51.87 billion, versus $52.44 billion as forecast by analysts, according to Refinitiv.

Microsoft posted the slowest revenue growth since 2020, at 12% year-over-year in the quarter, which ended June 30, according to a statement. The company’s earnings per share fell short of consensus for the first time since 2016, with net profit up 2% to $16.74 billion.

The biggest challenge of the quarter stemmed from the deterioration of exchange rates. Microsoft said that reduced revenue by $595 million and earnings by 4 cents per share. In June, Microsoft slashed its quarterly revenue and revenue guidance for earnings and revenue only due to rate fluctuations. Revenue and revenue for the quarter are at the low end of the ranges Microsoft had offered in June.

Microsoft’s Intelligent Cloud segment, which includes Azure public cloud for application hosting, SQL Server, Windows Server and enterprise services, generated $20.91 billion in revenue. That was up 20% and below the $21.10 billion consensus among analysts polled by StreetAccount.

The company said revenue from Azure and other cloud services increased 40% from 46% in the prior quarter. Analysts polled by CNBC had expected 43.1%, while StreetAccount’s consensus estimate was 43.4%. Microsoft does not disclose Azure revenue in dollars. But CEO Satya Nadella bragged about winning bigger Azure contracts on a conference call with analysts.

“We’re seeing larger, longer-term commitments and a record number of deals over $100 million and over $1 billion this quarter,” Nadella said.

Microsoft’s Productivity and Business Processes segment, including Office productivity software, Dynamics and LinkedIn, recorded revenue of $16.60 billion. That’s up almost 13% and slightly less than the StreetAccount consensus of $16.66 billion.

The More Personal Computing segment, comprising Windows operating system, Xbox video game consoles, Bing search engine and Surface devices, generated $14.36 billion in revenue for the quarter. Revenue was up 2% year-over-year and barely below StreetAccount’s consensus of $14.65 billion. Microsoft said search and news advertising, excluding traffic acquisition costs, increased 18% due to higher search volume and revenue per search. Still, a contraction in ad spending resulted in a $100 million reduction in revenue from the search and news advertising categories and LinkedIn.

Sales of Windows licenses to device manufacturers fell 2% in the quarter. Technology industry researcher Gartner said earlier this month that logistical disruptions in the quarter contributed to a 12.6% decline in quarterly PC shipments, a key data for this metric. The company said factory shutdowns in China in April and May and a deteriorating computer market in June cut device makers’ Windows revenue by $300 million.

The hurdles related to FX ad spend and computer sales were relatively well understood among investors ahead of the earnings report, said Peter Choi, senior research analyst at Vontobel Asset Management, which held 1.11 billion worth of Microsoft stock at the end of March, according to a filing.

“The major franchises that represent what people are most excited about owning Microsoft – those are the most resilient areas, and they continue to shine through maybe a slight deceleration, but those parts of the business were certainly more reassuring “, said Choi. .

Microsoft recorded operating expenses of $126 million related to its decision to stop selling products and services in Russia after that country invaded Ukraine.

During the quarter, Nadella announced that employees will receive pay increases and the company introduced services to help customers deal with security incidents.

Excluding the after-hours move, Microsoft stock has fallen 25% so far this year, compared to a roughly 18% drop in the S&P 500 index of U.S. stocks.

Executives will discuss the results with analysts and issue guidance during a webcast beginning at 5:30 p.m. ET.

This story is developing. Please check for updates.

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