Microsoft could be the biggest SaaS (software as a service) player in the world in two years, according to FBR analyst Daniel Ives.
Ives said he was optimistic about the vision of Microsoft chief executive Satya Nadella (pictured) for SaaS product Office 365, and the company's cloud computing and mobile strategies.
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“It is really more about Office 365,” said Ives in an interview for the CNBC programme Fast Money, explaining why now is the right time to invest in Microsoft shares. “Everything we see on cloud really signifies a turnaround,” he said. “We could view a $4bn to $5bn revenue stream [for Microsoft].”
According to Ives, Microsoft Azure is “on the heels” of Amazon Web Services. “Office 365 penetration is tiny today,” he said. “But if it takes off from a cloud perspective, the company could start to grow in high single-digits and get away from the challenging PC market.”
This, combined with what Microsoft is doing in the mobile and tablet space, means “you finally feel like there's a pilot on the plane after 10 years of pain”, said Ives. Nadella's mobile strategy includes the decision to offer free Windows on some mobile devices.
“What he [Nadella] is starting to do on mobile, and the turnaround, we could see an incremental 40 cents to annual earnings, and that really gets us incrementally positive on the name,” said Ives.
Ives upgraded Microsoft’s status from “market perform” to “outperform”, which saw Microsoft stock trade up 1.5% in intra-day trading on the US stock market last week.
In February 2014, Microsoft’s board appointed Nadella as its third CEO. Nadella, born in India, was previously executive vice-president of Microsoft’s cloud and enterprise group and has been with the company 22 years.
At that time, Nadella sent an email to Microsoft staff outlining his vision for the company. “Our industry does not respect tradition – it only respects innovation,” he said. “This is a critical time for the industry and for Microsoft.
“Make no mistake, we are headed for greater places – as technology evolves and we evolve with and ahead of it. Our job is to ensure that Microsoft thrives in a mobile and cloud-first world."
Earlier this week, analyst firm Gartner revealed its Magic Quadrant for cloud IaaS, which placed Microsoft alongside AWS in the “Leader” quadrant for IaaS.
John Dinsdale, a chief analyst and research director at Synergy Research Group, said Microsoft has grown its cloud infrastructure service revenues “remarkably in the last year and is now pulling away from the pack of operators chasing Amazon”.
According to Synergy Group’s data, Microsoft registered 154% growth in the first quarter of 2014 compared with Amazon's 67%, year-on-year.