Like most tech stocks in 2022, Microsoft (MSFT +0.17%) shares have lost a lot of steam amid near-term headwinds. The company has been hit by rising inflation and its effects on consumer spending.
As a result, the Windows company has been the focus of numerous headlines throughout the last few months, with a recent earnings report encouraging further scrutiny. Microsoft's planned acquisition of Activision Blizzard (ATVI +0.00%) for a historic $68.7 billion has also kept the media busy as investors wait on tenterhooks to find out if the deal will gain regulatory approval.
With a market cap of $1.74 trillion and home to dominating brands such as Windows, Office, and Xbox, current and prospective investors are wise to keep tabs on any new developments concerning Microsoft.
A questionable quarter
Microsoft posted first-quarter earnings for its fiscal 2023 on Oct. 25, offering a bit of a mixed bag. Wall Street was clearly unimpressed, as the company's stock dipped 7.7% within the next 24 hours.
Investors were primarily discouraged by slowing growth from Microsoft's cloud computing platform, Azure. The cloud service has been one of the company's fastest-growing businesses, reporting 50% revenue growth in Q1 2022. However, after seeing a decreased 40% growth in Q4 and now 35% in Q1 2023, investors are growing weary.
Additionally, the fact that Microsoft's Intelligent Cloud segment, primarily made up of Azure revenue, was responsible for 40.5% of the company's revenue in its latest quarter has only stoked the fire.
However, according to Fortune Business Insights, the cloud computing market is expected to see a compound annual growth rate of 17.9% between 2022 and 2028. Considering Azure is responsible for 21% of that market, the second-largest portion after Amazon Web Services, Microsoft is in a prime position to cash in on the growing industry regardless of short-term losses.
Despite disappointing growth for Azure, there were parts of Microsoft's quarterly report to rally over.
The company's total revenue beat analysts' expectations of $49.6 billion, earning $50.1 billion, an 11% increase year over year. Additionally, Microsoft's second-biggest segment, Productivity and Business Processes, which includes earnings from services such as Office and LinkedIn, also saw a 9% boost and brought in $16.4 billion -- 32.8% of Q1 2023 revenue.
Acquisition uncertainty
In addition to quarterly earnings, Microsoft has made headlines almost weekly thanks to its planned acquisition of Activision Blizzard, announced in January. The pricey cost made it necessary for the company to gain regulatory approval from agencies worldwide before it can go through.
With a market cap of $56.97 billion, Activision is the world's fourth most valuable games company, behind Microsoft, Tencent, and Sony (SONY +0.63%). It's grown into a dominating force in the industry, primarily because of its immensely popular game franchise, Call of Duty. The series hit $30 billion in all-time revenue in June and is a huge earner on both Microsoft's Xbox and Sony's PlayStation.
As a result, Microsoft made headlines again on Oct. 31 when Xbox CEO Phil Spencer vowed to keep the Call of Duty franchise on PlayStation consoles indefinitely. When news of the Microsoft-Activision acquisition first hit, there were concerns that having one console company outright own Call of Duty would grant it too much control over the market. This is why Spencer's claim of having zero plans to ever make the series exclusive to Xbox holds so much weight.
NASDAQ: MSFT
Key Data Points
Furthermore, Microsoft plans to purchase Activision in an all-cash transaction of $95 per share. Consequently, Activision's recent stock price of $72.80 would yield a return of 30.4%, which has had prospective investors buzzing over the likelihood of the deal gaining regulatory approval. So when an anonymous investor sold 3.7 million Activision shares on Oct. 19, the media took that to mean a lack of confidence in the acquisition.
However, Microsoft has remained optimistic that its purchase of Activision will come to fruition, with Spencer saying in late August that he "feels good" about the progress made.
His sentiments are clearly shared by Wall Street tycoon Warren Buffett, with his holdings company Berkshire Hathaway responsible for 68.4 million Activision shares, valued at $4.9 billion or 8.7% of the company.
As one of the world's most innovative and influential companies, Microsoft has seen its stock rise 175.8% in the last five years despite a sell-off in 2022. The company offers investors a diversified and robust business with brands that dominate multiple markets. While there may be temporary declines in its short-term future, Microsoft is an excellent investment for the long term.
