Microsoft CEO Satya Nadella speaks at Axel Springer Neubau in Berlin on Oct. 17, 2023
Ben Kriemann | Getty Images
Microsoft said last week that it plans to stop providing discounts on enterprise purchases of its Microsoft 365 productivity software subscriptions and other cloud applications.
Since the announcement, analysts have published estimates on how much more customers will end up paying. But for investors trying to figure out what it all means to Microsoft’s financials, analysts at UBS said the change is already factored into guidance.
“In our view, it is safe to assume that the impact of the pricing change” was included in Microsoft’s forecast, the analysts wrote in a report late Tuesday. They have a buy rating on the stock.
Microsoft’s disclosure, on Aug. 12, came two weeks after the software company, it its fiscal fourth-quarter earnings report, issued a forecast that included double-digit year-over-year revenue growth for the new fiscal year. The shares rose 4% after the report.
Microsoft said in its blog post announcing the pricing change that, “This update builds on the consistent pricing model already in place for services like Azure and reflects our ongoing commitment to greater transparency and alignment across all purchasing channels.”
The change applies to companies with enough employees to get them into price levels known as A, B, C and D. It goes into effect when organizations sign up for new services or renew existing agreements, beginning on Nov. 1.
“This action allows us to deliver more consistent and transparent pricing and better enable clear, informed decision making for customers and partners,” a Microsoft spokesperson told CNBC in an email.
Jay Cuthrell, product chief at Microsoft partner NexusTek, said customers will see price hikes of 6% to 12%. Partners are estimating an impact as low as as 3% and as high as 14%, UBS analysts wrote.
Microsoft 365 commercial seat growth, a measurement of the number of licenses that clients buy for their workers, has been under 10% since 2023. Microsoft is aiming to generate more revenue per seat by selling Copilot add-ons and moving some users to more expensive plans.
Expanding that part of the business is crucial. Most of Microsoft’s $128.5 billion in fiscal 2025 operating profit came from the Productivity and Business Processes unit, and about 73% of the revenue in that segment was from Microsoft 365 commercial products and cloud services.
Some customers could agree to pay Microsoft more to keep using the applications rather than moving to alternative services, said Adam Mansfield, practice lead at advisory firm UpperEdge. They may also lower their commitments to Microsoft in other areas, such as Azure cloud infrastructure, Mansfield said.
One way companies could potentially pay lower prices with the disappearance of discounts is by buying through cloud resellers instead of going direct, said Nathan Taylor, a senior vice president at Sourcepass, an IT service provider that caters to small businesses.
Sourcepass hasn’t gotten many leads as a result of Microsoft’s change yet, Taylor said.
“It takes a while for that information to disseminate to the industry at large,” he said.
Microsoft shares are up 20% this year, while the Nasdaq has gained about 10%.
WATCH: Microsoft’s software business has a tailwind in AI, says Melius’ Ben Reitzes
