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Microsoft’s price hikes caused analysts to meet their price targets on the tech giant’s shares.
Gerard Julien / AFP via Getty Images
Microsoft
the shares were headed on Friday after the company announced “substantial” price increases for its Office suite of applications.
In a blog post, the company said it would raise prices on both Office 365 and Microsoft 365, a broader set of tools that includes Office. Microsoft (ticker: MSFT) said this marks “the first substantial price update” since it launched Office 365 a decade ago, reflecting “the increase in value we’ve delivered to our customers over the past ten years.”
The company said customers have more than 300 million paid commercial seats for Office 365, with Teams collaboration tools now used by more than 250 million monthly active users.
Microsoft’s price increases will range from 9% to 25%, depending on the specific version of the software, and the increases will take effect in six months. There will be no changes in education or consumer editions of the software, the company said.
Analysts responded by raising earnings estimates and pricing targets for Microsoft stocks. UBS analyst Karl Keirstead, Wedbush analyst Dan Ives and Mizuho analyst Gregg Moskowitz repeated Buy’s ratings and all three raised their price targets to $ 350 , from $ 325.
“While it will take us a while to filter the model, we expect these actions to have a significant financial impact in fiscal year 2023 and beyond,” Moskowitz wrote in a research note. “We hold our view that Microsoft’s growth opportunities in the medium term and beyond are greater than many realize.”
Keirstead noted that the demand for security equipment and products is high and that both are included in Office 365 and Microsoft 365 at no incremental cost. “No customer welcomes a price increase, but this one seems more justified than aggressive or coming from a position of weakness,” he wrote. “We see it primarily as a team monetization action, which may not necessarily be positive for Zoom team rivals,
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Keistead also noted that the largest price increases (from 20% to 25%) are for more basic versions of the software. “We doubt Microsoft is making that move now unless it believes its long queue of SME customers is back on its feet after Covid,” he added.
Ives estimated that price increases could provide incremental revenue of $ 5 billion in the fiscal year of September 2022. He wrote that he considers the price increase to be a “smart strategic poker move” and said which gives you more confidence that earnings estimates will continue to rise. Ives wrote that Microsoft remains his favorite game in cloud computing.
Shares of Microsoft rose 2.7% to $ 304.76, after trading up to $ 305.66, a new all-time high.
Write to Eric J. Savitz at [email protected]