Reuters/Lucas Jackson
Microsoft's surprise price increase for its Office 365 services could represent a $5 billion revenue tailwind going into 2022, or more, Wedbush analyst Dan Ives said in a note on Friday.
The move by Microsoft to raise prices by $1 to $2 per month for its hundreds of millions of Office 365 users helped boost the stock by 5% over the past two trading sessions to record highs.
Ives wrote that the gains could continue and raised his price target to $350 from a prior target of $325, representing potential upside of 18% from Thursday's close.
"The Office 365 price increase for 2022 was a smart strategic poker move that could be another $5 billion+ incremental tailwind for Redmond in 2022, giving more confidence that numbers could continue to move up higher looking ahead," Ives said.
Incremental growth in Microsoft's Azure platform should also help accelerate the stock higher as businesses continue to transition to cloud-based architecture. Ives said while many believe Microsoft's business gains to slow down in a post-pandemic, post-work-from-home life, the software provider's deal flow is telling a different story.
"We believe the deal flow looks incrementally strong heading into 2022 as we estimate that Microsoft is still only ~35% through penetrating its unparalleled installed base on the cloud transition," Ives said.
Microsoft is well positioned to take market share from Amazon's AWS cloud service, according to the note, in part driven by the attractiveness of the Office 365/Azure combo deal offered by the company.
"Microsoft remains our favorite large cap cloud play and we believe the stock will move higher into year-end as the Street further appreciates the cloud transformation story in Redmond," Ives concluded.
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