Microsoft Corp. it plans a “substantial” price increase for its Microsoft 365 and Office 365 business offerings for the first time, in what analysts consider a “highly anticipated” change that could benefit both revenue and profits.
The technology giant announced on Thursday a series of changes in commercial prices, which will take effect from March 1.
Financial analysts are optimistic about the company’s potential to elevate its contributions from a key product line, which offers service packages such as Word, Outlook and Teams.
“In our opinion, these price increases will be a significant financial benefit for [Microsoft] over time, particularly with respect to one of the company’s most important product areas, ”wrote Mizuho analyst Gregg Moskowitz, who predicts investors will see the impact on the fiscal year 2023 and beyond.
The company offers a wide variety of commercial product suites and Moskowitz noted that low-end ones will see larger price increases than high-end ones, “which we hope will encourage more migration to high-end packages.”
“Furthermore, given a prolonged period of substantial innovation in these basic product suites (linked to productivity / security), and the absence of some previous price increases, we would expect to see fairly minimal increases in the reduction based on in dollars, “he continued.
Moskowitz reiterated its rating of buying Microsoft shares, while raising the $ 350 target price to $ 325.
Shares of Microsoft rose to a second consecutive record close on Friday and a seventh close in August.
Bernstein’s Mark Moerdler was also optimistic and wrote that he expects the benefits of the changes “to occur in a period of one to three years, as rising prices generally have an effect on contract renewals.” The measure could contribute to the growth of low- and mid-digit revenue in the Office 365 business and help profits “since most of the cost associated with Office 365 products is already integrated into the current operating model,” he added.
Moerdler described the price hikes “for a long time” and said they noted growing confidence among Microsoft executives “who have built a defensible pit around the Office franchise.” He sees room for another potential price increase, but not for “many years and once the company has added significant additional functionality.”
Microsoft does not raise the prices of education or consumer packages for Office 365 and Moerdler doubts that the company will increase consumer prices “given the long road to turning paid users into Office 365 consumers, in addition to reduce piracy ”.
UBS analyst Karl Keirstead saw the price rise “primarily as a team monetization move” and “which wouldn’t necessarily be positive for rivals on the Zoom, RingCentral or Salesforce / Slack teams.” He also calculated that the increase in the combined price, between the different suites of products, amounted to around 14% to 15%.
Keirstead raised the stock price target to $ 350, from $ 325, and maintained its buy rating.
Shares of Microsoft rose 3% in trading on Friday. They have gained 23.8% in the last three months as the Dow Jones Industrial Average DJIA,
has risen 2.9%.