Data#3 shares dive on profit impact from Microsoft incentive program
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The news: Data#3 shares tanked in early trading on the ASX after the Brisbane-based IT services provider was hit by changes to Microsoft's partner incentive program.
The numbers: Data#3 shares were down 9.6% to $6.71 by 11:15am AEDT, having lowered around 20% since January.
Data#3 said late Monday that the full effect of the changes in FY24 would have reduced full-year gross profit by around 3%.
However, the company reiterated its first-half guidance for FY25 of between $31 million and $33 million of pre-tax profit, and said it expects the changes to be immaterial to FY25.
The context: From 1 January 2025, Microsoft will implement several changes to its partner incentive program, including an increased focus on small, medium and corporate initiatives and reducing enterprise agreement licence rebates.
Data#3 said the changes will reduce the incentives earned on its Microsoft enterprise agreements as the tech giant shifts to increasing incentives for other programs.
Data#3 noted that Microsoft has been introducing gradual changes to its incentive programs over recent years. While the latest move represents "a more significant change", Data#3 has implemented a number of strategic initiatives to manage the change in focus, it said.
Jarden reiterated its 'overweight' rating on Data#3 but trimmed its target price from $8.54 to $8.25, cutting its NPAT forecasts by around 5% across FY25 to FY27. However, Jarden analysts said that Data#3 has a strong track record of adapting changes in Microsoft's rebate structures.
Morgan Stanley also kept its 'overweight' rating and $10 price target, but noted that Microsoft's changes will "likely weigh on the stock until further clarity on longer term impact".
The sources: ASX announcement, Jarden research, Morgan Stanley research
