Microsoft Could Stick It to Amazon Web Services
April 27, 2015
Grazed from Barron’s. Author: Editorial Staff.
Microsoft reported fiscal-third-quarter results that were well above expectations. The commercial licensing segment appears to be stabilizing, and the company posted very strong results in Office 365. We are increasing our fiscal 2016 estimates and are raising our target to $50 from $48.
Office 365 has over 62 million users, including 12.4 million consumer and 50 million corporate users, which is less than 10% of the Office installed base. Office 365 Home and Personal added 3.2 million subscribers in the quarter, much better than the 1.8 million we were expecting. We estimate that Microsoft (ticker: MSFT ) has over one billion Office users globally…
If just half of those users move to Office 365, then Microsoft could see over $35 billion in annual recurring revenue, which is more than the $25 billion in one-time revenue that Office reached when Microsoft still reported Office separately. At 20% margins, Office 365 could contribute $5.6 billion in recurring net income, which is even higher than our initial expectations of $3 billion…
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