Microsoft (MSFT) Office Subscription Model May Cannibalize Revs. But Positive Overall
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Rating Summary:
58 Buy, 10 Hold, 1 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 15 | Down: 18 | New: 23
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Microsoft (MSFT) announced yesterday the financial impact of its Office 365 offer, which allows people who purchase Office 2010 or Office for Mac 2011 to download, for free, one year of Office 365 Home Premium or the equivalent. As part of the modernizing of its products, Microsoft will begin to shift the business model of Office, delivering Office both as a subscription service and as a stand-alone license.
According to analysts at Nomura, the biggest near-term issue is whether Microsoft can smoothly transition from an upfront licensing model to a subscription model without cannibalizing its reported revenues.
“In a rather simplistic example, if a customer substituted an up-front Home Premium license of $140 for an Office 365 Home Premium subscription worth $100 over a year, the decrease or cannibalization of revenues in the first full year from the change would be a 29% decline in revenues,” noted analyst Rick Sherlund.
However, analyst say that by year two the effect would be the benefit of an incremental $100, which would help alleviate the impact on results from additional transitions to a subscription model.
“To the extent that Microsoft is able to keep churn low on the subscription piece and drive incremental sales of add-on products, we expect this should be market expanding for Microsoft,” he said.
Nomura Securities has a Buy Microsoft (NASDAQ: MSFT) with a price target of $37.00
For an analyst ratings summary and ratings history on Microsoft click here. For more ratings news on Microsoft click here.
Shares of Microsoft closed at $31.21 yesterday.
According to analysts at Nomura, the biggest near-term issue is whether Microsoft can smoothly transition from an upfront licensing model to a subscription model without cannibalizing its reported revenues.
“In a rather simplistic example, if a customer substituted an up-front Home Premium license of $140 for an Office 365 Home Premium subscription worth $100 over a year, the decrease or cannibalization of revenues in the first full year from the change would be a 29% decline in revenues,” noted analyst Rick Sherlund.
However, analyst say that by year two the effect would be the benefit of an incremental $100, which would help alleviate the impact on results from additional transitions to a subscription model.
“To the extent that Microsoft is able to keep churn low on the subscription piece and drive incremental sales of add-on products, we expect this should be market expanding for Microsoft,” he said.
Nomura Securities has a Buy Microsoft (NASDAQ: MSFT) with a price target of $37.00
For an analyst ratings summary and ratings history on Microsoft click here. For more ratings news on Microsoft click here.
Shares of Microsoft closed at $31.21 yesterday.
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