Microsoft Beats Q3 2023 Estimates But Activision Deal Gets Blocked By UK Regulator

Microsoft (Nasdaq: MSFT) reported on Tuesday its financial results for fiscal Q3 2023, highlighting a quarterly revenue of $52.86 billion. The topline figure is an increase from fiscal Q3 2022’s $49.36 billion.

The revenue figure also beat the street estimate of $51.1 billion, despite a continued slowdown in the company’s cloud revenue.

Down the line, net income came in at $18.30 billion for the quarter, up from last year’s $16.73 billion. This translates to $2.45 earnings per diluted share, beating the expected $2.23 per share.

Power of AI

Microsoft’s multi-year, multi-billion dollar investment in OpenAI, the company behind ChatGPT, helped spark Big Tech’s obsession with artificial intelligence.

Since then, Microsoft has integrated OpenAI technology into its Edge browser, Bing search engine, Microsoft 365 office tools, and cybersecurity products.

“The world’s most advanced AI models are coming together with the world’s most universal user interface – natural language – to create a new era of computing,” said Satya Nadella, chairman and chief executive officer of Microsoft. “Across the Microsoft Cloud, we are the platform of choice to help customers get the most value out of their digital spend and innovate for this next generation of AI.”

Following Azure and Dynamics 365, Microsoft Cloud contributed the third highest year-on-year revenue increase at 22%.

Although it appears that the AI buzz and the general market recovery after a difficult 2022 have aided Microsoft’s stock, the company’s primary growth engine is still its cloud computing initiatives in its Azure unit.

But over the past year, that increase has significantly slowed. Microsoft reported a 46% yearly growth in Azure for the third quarter of 2022, but it only posted 27% growth during the most recent quarter.

Activision deal blocked

Microsoft’s earnings release comes alongside the decision by Competition & Markets Authority (CMA) to block the proposed $69 billion acquisition deal to buy Activision Blizzard (Nasdaq: ATVI).

The ultimate decision to block the transaction was made after the UK watchdog announced its preliminary findings in February, which found that Microsoft’s suggested remedy did not adequately address the issues in the cloud gaming market.

As early as September, CMA aired out its concerns that Microsoft’s Xbox might use the acquired Activision assets to gain an unfair competitive advantage on the game title releases over its competitors.

“We are concerned that Microsoft could use its control over popular games like Call of Duty and World of Warcraft post-merger to harm rivals, including recent and future rivals in multi-game subscription services and cloud gaming,” said CMA senior director of mergers Sorcha O’Carroll.

According to CMA, Microsoft aimed to address the competition concerns with a proposed remedy setting out “requirements governing what games must be offered by Microsoft to what platforms and on what conditions over a ten-year period.”

But the UK watchdog found the remedy insufficient as it did not sufficiently cover different cloud gaming service business models, it was not sufficiently open to providers who might wish to offer versions of games on PC operating systems other than Windows, and it would standardise the terms and conditions on which games are available, as opposed to them being determined by the dynamism and creativity of competition in the market, as would be expected in the absence of the merger.

“Cloud gaming needs a free, competitive market to drive innovation and choice. That is best achieved by allowing the current competitive dynamics in cloud gaming to continue to do their job,” Martin Coleman, chair of the independent panel, said.

The deal is also facing a hurdle with the Federal Trade Commission (FTC), who filed an antitrust case against Microsoft in December, claiming the deal is an “illegal acquisition.”

“With control of Activision’s content, Microsoft would have the ability and increased incentive to withhold or degrade Activision’s content in ways that substantially lessen competition,” the FTC complaint read.

Outside of the United States and United Kingdom, Brazil approved the acquisition deal.

Information for this briefing was found via Yahoo Finance and the sources mentioned. The author has no affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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