Microsoft’s announced price increase for its Office 365 and Microsoft 365 suites of cloud productivity applications could net the tech giant “another US$5 billion-plus incremental tailwind,” according to a report from Los Angeles-based investment firm Wedbush.
Wedbush has seen deal sizes increase for Microsoft’s Azure cloud product with more enterprise-wide digital transformations and chief information officers (CIOs) embracing cloud architectures. The firm estimates that Redmond, Wash.-based Microsoft has still only about 35 percent penetration in its installed base when it comes to cloud transition.
“To this point, we believe Azure‘s cloud momentum is still in its early days of playing out within the company’s massive installed base and the Office 365 (O365) transition for both consumer/enterprise is providing growth tailwinds over the next few years,” according to the report, issued Thursday.
“With this highest IT priority front and centre, we believe 85%-90% of these cloud deployments have already been green lighted by CIOs and healthy cloud budgets already in place, with Redmond firmly positioned to gain more market share vs. AWS in this cloud arms race.”
Digital transformation is a US$1 trillion total addressable market, with CIOs spending US$1 trillion on cloud worldwide over the next decade. according to Wedbush. It predicts that enterprise workloads on the cloud will increase from 40 percent today to 45 percent by year’s end and to 55 percent by 2022.
The trends disproportionately benefit “the cloud stalwart out of Redmond, as Nadella & Co. are so well positioned in its core enterprise backyard to further deploy its Azure/Office 365 as the cloud backbone and artery,” according to the report, referring to Microsoft CEO Satya Nadella.
Wedbush isn’t the only investment firm to publish a bullish report on the tech giant’s price increase. A Wednesday report from Cleveland-based investment bank KeyBanc Capital Markets said the price increase of between 9 to 25 percent — depending on customers’ O365 and Microsoft 365 subscription — could help sustain average revenue per unit growth in general.
Eight percent of Microsoft’s more than 300 million O365 Commercial seats are currently E5, which saw a price increase of 9 percent from US$35 to US$38.
The firm sees “potential for upside” to its current fiscal year 2022 O365 revenue estimate, which is US$35 billion— which would mean an 18 percent increase year over year — as well as KeyBanc’s fiscal year 2023 estimate of US$39.4 billion — which would mean a 13 percent increase year over year.
CRN has reached out to Wedbush and KeyBanc for additional comment.
Microsoft’s stock opened at US$299.72 on Friday, a 3.8 percent increase compared to US$288.69 at Thursday open.