Again, this is a contract that is set to work in stages, and it is far too soon to go out and begin modeling how the revenue jump is going to come into play immediately at Microsoft. This is a multiyear award that has option periods extending out more than a decade. While a $10 billion award is massive for any company, even if spread out over a decade, Microsoft generated $125.8 billion in fiscal year 2019 sales, and Refinitiv has a consensus estimate of just over $140 billion for fiscal 2020 and $156 billion for fiscal 2021. Amazon generated almost $233 billion in revenues in 2018, and the Refinitiv estimates of $279 billion in 2019 and over $331 billion in 2020.
The ongoing review and future potentiality for more awards and vendors was noted by the DoD announcement as follows:
The base contract period is two years with a $1 million guarantee. The department projects that user adoption will drive an estimated $210 million of spending during the two year base period. The DOD will rigorously review contract performance prior to the exercise of any options. … The Department continues to assess and pursue various cloud contracting opportunities to diversify the capabilities of the DoD Enterprise Cloud Environment. Additional contracting opportunities are anticipated. … This award is an important step in execution of the Digital Modernization Strategy. … DOD will continue to partner closely with industry to bring the best of commercial innovation to bear on behalf of our nation’s warfighters.
While this announcement has now been made, it remains unclear whether there will be after-the-fact moves and lobbying efforts to overturn, appeal or even create further delays in the implementation. The current state of politics in the United States could also become a factor, but it’s just too soon to see how those balls will bounce and where they will finally settle.
Amazon closed down 1.1% at $1,761.33 on Friday after earnings, but it had traded down closer to $1,700 before the trade news helped the entire market. Its shares ended the week up less than $4 per share. Many analysts on Wall Street had trimmed their price targets after the earnings report.
Microsoft shares closed up 0.5% at $140.73 on Friday, but its stock had been at $137.24 prior to earnings, and the shares closed up more than $3 for the entire week. It was deemed an earnings victor at a time when slower economic growth and concerns about trade are weighing on many companies.
This is one of those contract awards that is massive in scope and seems massive for taxpayers. It is less massive for companies once you consider the duration and ongoing integrations and additional awards that will still be seen. That said, Microsoft being able to include in its sales pitches and competitive cloud contracts that it beat AWS out for the Defense Department’s JEDI contract is probably going to come up in other sales processes in the large enterprise contracts that are coming in the months and years ahead.