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Microsoft, Alphabet Drop Following Quarterly Earnings

Plus500 | Wednesday 27 April 2022

2022’s first earnings season continued this week with even more of the top names in tech revealing their latest results. Let’s take a look at how industry pioneers Microsoft and Alphabet did over the course of the most recent quarter:

Microsoft and Google

Microsoft Boots Up

On Tuesday, April 26th, long-time tech industry leader Microsoft (MSFT) released its Q3 results. This firm’s figures showed steady business fundamentals, outpacing financial analysts’ expectations.

Some had been expecting Microsoft to reveal a gloomier picture on Tuesday, both due to the general drop in tech companies’ stock values so far this year, as well as the supply chain problems caused by the COVID-19 lockdowns in China. However, for the quarter ending in March, Microsoft’s total revenues increased by nearly one-fifth compared to those observed over the same quarter last year, reaching $49.4 billion. This figure was 4% higher than market watchers had been expecting, and Microsoft's earnings per share (EPS) figure for Q3 came in at $2.22, also higher than previous estimates by three cents.

While Microsoft, along with a plethora of other Western businesses, has suspended its activities in the Russian Federation in response to the latter’s military involvement in Ukraine, these made up less than 1% of the firm’s total revenue, minimising this divestment’s impact on Microsoft overall. 

Additionally, Microsoft’s cloud-based branch, which increased in importance over the course of the pandemic as more people across the world were forced to work from home, rose in revenue by nearly one-third over the past year. Revenue resulting from proprietary applications, including the Microsoft Office suite, increased by 17%. Additionally, LinkedIn, owned by Microsoft, brought more than a third more revenue to the company’s coffers than it did a year ago.

These numbers may have been encouraging for investors looking to ascertain how Microsoft fared over its most recent fiscal quarter, but what top executives had to say about the current three-month period may have been of interest as well. 

Microsoft’s Chief Financial Officer, Amy Hood, presented a mixed picture to investors on Tuesday’s conference call. While she predicts that Microsoft’s Productive and Business Processes segment, including the Office suite of applications, will increase in revenue by over 5%, the production shutdowns in China could still stand to affect the manufacturing of hardware needed for Surface and Xbox, bringing predicted revenue below consensus estimates.

One wild card that could affect Microsoft’s business model going forward is the ongoing acquisition deal of game company Activision Blizzard (ATVI). It remains to be seen how the nearly $70 billion deal could affect Microsoft’s revenue for the coming quarters.

Despite the strong growth across several branches of Microsoft’s core business, traders continued to sell the firm’s shares. On Wednesday, Microsoft stock dropped by 3.8% despite rising 6% during after-hours trading following the earnings release on Tuesday after market close.

Alphabet Struggles

Alphabet (GOOG), the parent company of tech behemoth Google, reported its Q1 2022 on Tuesday afternoon following the end of trading on Wall Street. Heading into the results release, Alphabet shares were down by 15% for the year, so investors may have been anxious to hear how this tech giant fared over the course of Q1.

Tuesday’s report did not hold any great surprises; sales were about what had been predicted by analysts for the quarter. However, much as with a range of businesses across different sectors, costs rose during Q1 2022, putting additional pressure on Alphabet’s bottom line.

Many market watchers were especially to learn how Alphabet’s advertising branch had done from January to March. While Google Ads brought the firm nearly $55 billion in Q1 revenue, an increase of over one-fifth from last year’s first quarter, YouTube’s advertising growth failed to keep up. Estimates had been for the video platform to produce $7.4 billion, but final results showed that Q1 revenue from YouTube advertisements only amounted to under $6.9 billion. This represents an increase of 14% from Q1 2021.

Strong competition in the streaming and social media sectors posed a strong challenge for Alphabet last quarter. Like Netflix (NFLX) and Meta (FB), Alphabet’s YouTube lost market share among the key teenage and young adult demographics. Additionally, despite expanding investments, Google Cloud is still struggling to reach profitability as it strives to compete with Amazon (AMZN) Web Services and Microsoft Azure in the cloud business.

Yesterday, the first trading day following Alphabet’s earnings release, the firm’s stock fell by almost 3%, bringing the company’s loss in stock price to 17.5% for 2022 so far.

While Microsoft’s and Alphabet’s quarterly reports this week may not have been shocking, they revealed that even the biggest names in the U.S. tech industry might be facing significant headwinds in the current macroeconomic environment. Whether these giants can break their losing streak on the stock market remains to be seen.

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