Software Companies Still Have Pricing Power
Software company subscriber growth may slow with the U.S. economy, yet Software companies still have pricing power.
Price increases to provide revenue lift. Enterprise Software companies such as MSFT will enjoy Revenue lift from price increases even as unit sales slow. MSFT’s Dynamics 365 price increases are effective October 1st (HERE).
Revenue lift from embedding Gen AI capability? It will be interesting to see what kind of Revenue lift application software companies may enjoy as a result of embedding Gen AI capability into certain offerings. Thus far, MSFT Copilot Pro uptake has been underwhelming.
EPS growth: A combination of price increases and tight expense management ought to drive Operating Margin expansion for many Software companies in the coming months. Companies could accelerate EPS growth by reducing “below the line” expenses such as Interest Expense should long rates drop further. The 10-year Treasury currently yields 3.66% and is down from 4.49% in early July.