Microsoft Corporation CEO Satya Nadella gestures as she addresses the upcoming Decoded Technology Summit in Bangalore on February 25, 2020. (Photo by Manjunath Kiran / AFP) (Photo by MANJUNATH KIRAN / AFP via Getty Images)
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Shares of Microsoft closed on Monday at a new record as more analysts acknowledged the financial implications of the software and hardware maker’s decision to raise the price of certain Office 365 productivity software subscriptions for companies next year.
Shares closed at $ 304.65 a day, giving the company a market capitalization of about $ 2.3 trillion. Microsoft’s shares are up about 37% year-over-year, outpacing most of its big tech rivals. However, Alphabet, one of Google’s parents, has grown by almost 60% so far.
Analysts have not rushed to update their estimates, but many said the price change could increase revenue for a key portion of the business, along with the benefits, that the costs of providing Office services 365 customers are already included in Microsoft. operations.
Commercial subscriptions to Office 365 accounted for about 18% of Microsoft’s revenue during the fiscal year ended June 30, a Goldman Sachs team led by analyst Kash Rangan wrote in a note on Sunday.
“We believe the recent announcement highlights the company’s strong competitive positioning and long-term pricing power, helping to drive ARPU’s continued growth through CY22, as well as contributing to continued migration. from SKUs to E3 and E5, ”the group wrote.
The price of one type of subscription, the Office 365 E5 premium, increases by 9% per user and month from March 1, 2022, while the cost of the more affordable Office 365 E1 will increase by 25 %.
“In our view, price increases could be aimed at driving a later migration to premium SKU E3 and E5, as the increase percentages are lower for more premium levels, increasing the relative value proposition of the SKUs premium, ”wrote Rangan and colleagues.
Analysts at Mizuho and UBS raised their Microsoft stock price targets to $ 350, from $ 325 after Microsoft’s announcement.
“We anticipate more clarity about the company’s first-quarter earnings call price increases (late October),” Cowen analysts led by J. Derrick Wood wrote in a note Thursday.
The impact will not only affect the Office line. The cost of Microsoft 365 E3, which will rise by 13%, includes Windows, as well as security and business mobility features. Revenue from this subscription means more money for the highly profitable Windows business, along with the per-user share of the fast-growing Azure cloud business, UBS analysts wrote.
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