Microsoft could be sitting on a $50 billion advertising opportunity, Barclays says

Published Wed, Feb 28 202411:03 AM ESTUpdated Wed, Feb 28 202411:17 AM EST

Advertising could be an additional source of growth that brings in tens of billions of dollars to Microsoft , according to Barclays. Analyst Raimo Lenschow reiterated his overweight rating and $475 price target on the maker of the Windows operating system, citing optimism around the ad business. His price target implies shares can rally about another 17%. "We believe Microsoft's advertising business deserves greater attention as of late," Lenschow told clients in a Wednesday research report. "The company has revamped its search offering with new generative AI features, and the ongoing antitrust case pertaining to Google's dominance in search has stirred conversation around a potentially greater opportunity for Microsoft to compete." Microsoft can be a long-term challenger to existing advertising giants in the technology sector, Lenschow said. Specifically, he said there's a $30 billion opportunity, primarily driven by Microsoft's LinkedIn and Bing divisions. Beyond that, he said another $20 billion could get added to the top line if Microsoft improves distribution. The Redmond, Washington-based company's search offerings can be helped by regulatory moves, Lenschow said. Google may take a hit if forced to change practices following a Department of Justice suit. The Digital Markets Act in the European Union could also help Microsoft win market share, he added. They would come on top of product improvements such as the implementation of artificial intelligence-powered image generation into Bing that should already attract more costumers, he said. Lenschow also said Microsoft has quietly become the largest business-to-business advertising player, raking in more than $5 billion in revenue from the space in the 2022 calendar year. MSFT YTD mountain Microsoft, year to date With acquisitions of advertising technology companies such as PromoteIQ and Xanadr, Microsoft can obtain greater exposure to higher-growth digital areas such as connected TV and retail media, Barclays believes. "This holistic ad-tech stack serves as a unique value proposition for Microsoft, and mirrors the transformation of similar advertising mainstays," Lenschow said. Shares of Microsoft were little changed in early trading on Wednesday. The maker of the PlayStation 5 video game has added more than 8% this year, extending last year's 56% advance.