Microsoft’s Office 365 price increase could be $5B boost for its business, analyst estimates

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An upcoming price increase for Microsoft 365 business software subscriptions, announced this week, promises to boost its business by as much as $5 billion annually, one analyst predicts.

Microsoft plans to boost the price for its business software subscriptions, including its core Office 365 suite, starting on March 1, 2022. The company calls it “the first substantive pricing update” since it launched Office 365 back in 2011, shifting from traditional licenses to subscription pricing.

The price increase “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,” wrote Daniel Ives, an analyst with Wedbush, in a note to clients Friday morning.

For context, Microsoft’s revenue was $168.1 billion in its recently completed 2021 fiscal year, which ended June 30, up 18% year-over-year.

Ives wrote that Wedbush’s latest checks with Microsoft customers indicate that the “Azure cloud growth story is hitting its next gear of growth,” contrary to Wall Street assumptions that the return to the office after the pandemic would put the brakes on cloud revenue growth.

Based on those two developments, Wedbush raised its 12-month stock price target for Microsoft to $350 per share, from $325 per share previously.

Microsoft’s price increase “reflects the increased value we have delivered to our customers over the past 10 years,” wrote Jared Spataro, corporate vice president for Microsoft 365, in a post this week.

Here’s how the price increases break down.

Microsoft 365 Business Basic (from $5 to $6 per user)
Microsoft 365 Business Premium (from $20 to $22)
Office 365 E1 (from $8 to $10)
Office 365 E3 (from $20 to $23)
Office 365 E5 (from $35 to $38)
Microsoft 365 E3 (from $32 to $36)

Microsoft shares closed Friday at 304.35, up 3.7% for the week.

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