Microsoft stock hits new record after Office price hike announced

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Microsoft Corporation CEO Satya Nadella makes a gesture as he addresses the Future Decoded Tech Summit in Bangalore on February 25, 2020. (Photo by Manjunath Kiran / AFP) (Photo by MANJUNATH KIRAN / AFP via Getty Images)

MANJUNATH KIRAN | AFP | Getty Images

Microsoft shares closed at a new high on Monday, as more analysts recognized the financial implications of the software and hardware maker’s decision to increase the price of certain Office 365 productivity software subscriptions for consumers. companies next year.

The shares closed at $ 304.65 for the day, giving the company a market cap of nearly $ 2.3 trillion. Microsoft shares rose about 37% for the year, outperforming most of its big tech rivals. However, Alphabet, parent company of Google, has recorded gains of almost 60% since the start of the year.

Analysts weren’t quick to update their estimates, but many said the price change has the potential to increase revenues for a fundamental part of the business – as well as profits – as well as costs. of providing Office 365 services to customers are already factored into Microsoft operations.

Commercial Office 365 subscriptions accounted for about 18% of Microsoft’s revenue in the fiscal year ended June 30, a Goldman Sachs team led by analyst Kash Rangan wrote in a Sunday note.

“We believe the recent announcement highlights the company’s strong competitive positioning and long-term pricing power, contributing to the continued growth of ARPU up to CY22 as well as the continued SKU migration to E3 and E5, ”the group wrote.

The price of one type of subscription, Office 365 E5 premium, will increase by 9% per user per month starting March 1, 2022, while the cost of the more affordable Office 365 E1 will increase by 25%.

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“In our view, the price increases could be aimed at accelerating the migration to premium E3 and E5 SKUs, as the percentage increases are smaller for more premium levels, thus increasing the relative value proposition of premium SKUs,” said wrote Rangan and his colleagues.

Mizuho and UBS analysts raised their Microsoft stock price targets to $ 350 from $ 325 after Microsoft’s announcement.

“We anticipate more clarity on the price increases when the company’s 1Q22 results are called (end of October),” Cowen analysts led by J. Derrick Wood wrote in a note on Thursday.

The impact will not only affect the Office line. The cost of Microsoft 365 E3, which will increase in price by 13%, includes Windows as well as enterprise mobility and security features. More revenue from this subscription means more money for the highly profitable Windows business, as well as the per-user portion of the fast-growing Azure cloud business, UBS analysts wrote.

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