Where next for Microsoft share price in 2022?

Microsoft’s [MSFT] share price has had an excellent 2021 thanks to the strength and depth of its business. Having closed Friday at $342.54, Microsoft’s share price isn’t too far off its all-time high of $349.67, which it hit in intraday trading on 22 November.

One person taking advantage of Microsoft share price’s epic performance this year is Satya Nadella. The Microsoft CEO sold more than half his stake in the tech giant at the end of November, netting him a cool $285m from the transaction.

Anyone speculating that this might be a bad omen should remember that Nadella still owns 830,000 shares in the company - a stake worth around $280m. And according to Fortune Magazine, the move appears to be a way to minimise tax liability under Washington state law.

Nadella stock sale looks to be a tidy piece of business for the Microsoft head honcho, but  investors might be wondering whether there is any more upside in Microsoft’s share price.

What’s happening with Microsoft share price?

Microsoft's share price has thundered over 54% higher so far in 2021 (through 10 December), bettering 2020’s stellar 40% gain. The stock is up 15.8% over the past three months.

Pushing the stock higher has been strong earnings, with consistent growth across most of Microsoft’s business lines. In fiscal first quarter 2022 results released in October, the tech company posted net income of $20.5bn, up 48% year-on-year, while revenue came in at $45.32bn, up 21% year-on-year.

In the results revenue from Aszure and other cloud services jumped 50%, search and news advertising 41%, and dynamics products and cloud services 31%. Xbox content and services grew a meagre 2%, likely due to the easing of lockdown restrictions and workers returning to offices.

One area that has delivered consistent growth for Microsoft over the past couple of years has been Office 365. Commercial sales for the package that includes mainstays such as Word and Excel saw a 23% jump in the quarter. And it's here that Microsoft could see further growth as it prepares to launch a standalone version of its business communication platform, Microsoft Teams.

Microsoft Teams emerges as a growth driver

Workers stuck at home led to Microsoft Teams usage exploding during the pandemic. In October 2020, Microsoft reported that it had 115m daily users on the platform, a 50% surge year-on-year, and by April 2021 that figure had hit 145m daily users. By July this year, Microsoft had reported 250m monthly active users.

Now Microsoft is releasing a standalone Teams business product to compete with Zoom and Webex. The product will be known as Teams Essentials and includes support for large meetings and unlimited group meetings. At $4 per user, per month, it’s cheaper than a subscription to Microsoft 365 Business Basic Plan and even includes Office web apps.

Of course, Microsoft isn’t the only company to offer this type of product. Alphabet offers Google Meet and its Office-like products, such as Google Docs, Cisco has WebEx and Salesforce [CRM] Slack.

However, pandemic stalwart Zoom [ZM] - a name that has become synonymous with video conferencing - could see its market share and margins come under pressure, with a lack of a diverse revenue stream to offset things.

Teams Essentials severely undercuts even Zoom's cheapest business package, Zoom Business at $20 per user, per month. The basic version of Teams has always had a leg up on Zoom as it comes bundled with Microsoft’s Office 365 package. Now the standalone package will compete for businesses without a 365 subscription. Zoom could slash its price, but that would hurt its profit margins 

In November, UBS analyst Karl Keirstead trimmed his price target on Zoom from $315 to $285. One of the reasons cited was competition from Microsoft Teams.

Wall Street sees upside on Microsoft’s share price

Microsoft could be onto a winner with standalone Teams, especially if the spread of Omicron, or future variants, leads to more working from home. Only last week the UK government advised that workers should work at home if possible.

Some analysts are very optimistic about the firm’s immediate future, which could soon include a $3tr valuation, according to Dan Ives of Wedbush. Wells Fargo analyst Michael Turrin initiated coverage of Microsoft with an Overweight rating and $400 price target, saying the tech company had a ‘bright future’. Turrin’s bullish price target indicates a 16.7% upside on Friday’s close.

“[Microsoft has] the widest and deepest competitive moats of any company we cover” - Deutsche Bank's Brad Zelnick

Over at Deutsche Bank, Brad Zelnick initiated coverage of the stock with a Buy rating and a $390 price target at the start of November. The analyst described Microsoft as having ‘the widest and deepest competitive moasts of any company we cover’. Barclays upped its price target on Microsoft to $363 in late October.

Among the analysts tracking Microsoft on Yahoo Finance, the stock has an average $363.88 price target, suggesting a 6.2% upside.