Office for iPad: A Billion Dollar Opportunity for Microsoft Corporation?

Microsoft may be late to the iPad party, but the opportunity for the company is still meaningful.

Apr 6, 2014 at 12:45PM

Most of the analysis of what Office for iPad in Apple's App Store means for Microsoft (NASDAQ:MSFT) discusses what the move suggests about the company's shifting strategy. For instance, in a previous post I discussed why Office for iPad is Microsoft's best strategic move in years. But what about the potential implications on Microsoft's financials? How could Office for iPad impact the software giant's bottom line?

The impact
Microsoft Office is the undeniable leader productivity software, so it's likely the suite sill see a boost in sales with its availability on the world's most popular tablet. While it will take time for investors to see exactly how many new Office 365 subscriptions its availability on the iPad could inspire, that doesn't stop us from making estimates.

Word Office Ipad

Microsoft Word for iPad. Available with a Office 365 subscription.

Microsoft can make money from new Office 365 subscriptions as a result of the suite's availability on the iPad in two ways. First, users may subscribe to Office 365 from within the Office apps on the iPad. Microsoft only gets to keep 70% of the $100 recurring fee from these subscriptions. Second, users may be persuaded to subscribe to Office 365 thanks to its newfound availability on an iPad yet choose to subscribe on a PC or another device for either $9.99 per month of $100 per year. Microsoft gets to keep 100% of these subscriptions.

I consider it reasonable to assume that 10% of new iPad buyers in the next twelve months and 5% of Apple's current active installed iPad base will subscribe to Office from within Apple's App Store. It is also fairly conservative to estimate that new subscriptions, inspired by Office's availability on iPad yet completed outside of the iPad app, could amount to a figure equivalent to about 2% of new iPad sales in the next twelve months and 1% of the active installed base of iPads.

This hypothetical scenario could result in about $1.15 billion in incremental recurring revenue for Microsoft. Assuming a 75% gross profit margin on these sales (3.5% higher than Microsoft's corporate average), this could boost Microsoft's annual gross profit by about 2%. And thanks to Microsoft Office 365's lucrative gross profit margin, this 2% boost to gross profit would likely have an outsized impact on the bottom line.

But even this understates the billion-dollar opportunity Office for iPad is for Microsoft. Thanks to a smooth transition to a recurring revenue model with Office 365, Office for iPad gives Microsoft investors a solid new stream of cash they can likely count on for years to come.

While it's a shame it took Microsoft so long to finally bring Office to iPad, the opportunity is still meaningful. Sure, these are just estimates based on a hypothetical scenario. But, if anything, these estimates are likely conservative

Are you ready to profit from this $14.4 trillion revolution?
Let's face it, every investor wants to get in on revolutionary ideas before they hit it big. Like buying PC-maker Dell in the late 1980s, before the consumer computing boom. Or purchasing stock in e-commerce pioneer Amazon.com in the late 1990s, when it was nothing more than an upstart online bookstore. The problem is, most investors don't understand the key to investing in hyper-growth markets. The real trick is to find a small-cap "pure-play" and then watch as it grows in explosive lockstep with its industry. Our expert team of equity analysts has identified one stock that's poised to produce rocket-ship returns with the next $14.4 trillion industry. Click here to get the full story in this eye-opening report.

Daniel Sparks owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers