Jefferies analysts reiterated a Buy rating and Franchise Pick designation on Microsoft (NASDAQ:MSFT) after a deep-dive analysis of Microsoft Copilot 365.
Microsoft announced earlier it will make M365 Copilot generally available on November 1st. There is significant interest in this product, with more than 10,000 customers already in line and ready to adopt it.
“Using conservative assumptions, our monthly what-if rev analysis shows that M365 Copilot, assuming no discounting could drive $3B in rev in FY24 and $19B+ in FY25 (exiting at a $25B+ rev run rate), or ~8% upside to our FY25 total rev est,” the analysts wrote in a client note.
“While our what-if analysis assumes slightly faster M365 Copilot enterprise adoption than that of GitHub Copilot for Business which had 27K enterprise custs ~5 months after going GA, we believe it's reasonable given M365 Copilot’s larger addressable enterprise base which may ultimately prove to be conservative.”
Microsoft's announcement of the general availability of Windows Copilot on September 26th has also the potential to positively impact Bing Ad revenue. Windows Copilot users in the preview have reported seeing Bing Ads in response to their search queries.
Given the large user base of Windows 11, which includes "hundreds of millions" of users compared to Bing's 100 million monthly active users, Microsoft could use Windows Copilot to increase Bing impressions and, consequently, ad revenue, Jefferies analysts wrote.
“That said, we remain skeptical of users adopting Bing, with past attempts by MSFT having little impact on changing user's preference for GOOGL's more up to date and relevant results,” the analysts concluded.