UPDATED 10:32 EDT / OCTOBER 19 2017

APPS

SAP earnings fall short on slower cloud and business software growth

It’s not all up and to the right for SAP SE, as the European business software giant hit a rough patch in its third quarter as it continues to move its applications business into the cloud.

After at least a couple of quarters of strong growth both in its software license business and its cloud revenues, SAP today reported a slowdown in both those areas.

The news surprised investors, who bid shares down as much as 2.9 percent on the Frankfurt exchange despite SAP raising its sales forecast for the year. However, after the earnings conference call, SAP’s shares trading on the New York Stock Exchange were rising a little over 1 percent in morning trading, and shares on the European exchange trended back up to flat.

Revenue rose 8 percent from a year ago, to €5.6 billion ($6.6 billion), which fell short of the mean forecast of 5.71 billion euros, according to Reuters. Profit before some special items rose by 4 percent, to €1.64 billion, at constant currency rates, SAP said, below the €1.69 billion analysts expected.

“Overall it was not a good quarter,” said Andrew Bartels, vice president and principal analyst at Forrester Research Inc. “The growth was not as strong as in previous quarters,” particularly in North America.

One culprit was the source of strong growth in previous quarters: its business network group, which includes acquired businesses such as Ariba Inc., Concur Technologies Inc., Fieldglass Inc. and SuccessFactors Inc. Bartels noted that SAP had been depending on that growth to the extent that “success may have bred some complacency” in applications such as Ariba, which is said is “not really best-in-class in its category anymore.” That may have allowed competitors to gain some ground, he said.

However, that wasn’t the only disappointment. Revenues from applications offered through cloud computing services rose only 19 percent, well below previous quarters despite heavy investment, and well behind the growth of cloud leaders such as Salesforce.com Inc.

On the earnings call, however, Chief Executive Officer Bill McDermott (pictured) insisted that SAP is “rocking the cloud,” noting strong new orders from countries such as China. “You can expect a dynamite Q4,” he said. “Don’t worry about bookings, relax, it’s going to be terrific.” In fact, he said the company would report “at least 30 percent year-over-year cloud bookings growth.”

One continuing source of strong growth in the third quarter was revenue from SAP’s S4HANA business suite, which was the reason the company raised its forecast for 2017. The suite, which customers can use in their own data centers or hosted in the cloud, added 600 customers in the quarter, more than in the second quarter, bringing the total to 6,900 users.

“HANA is definitely getting some traction for them,” Bartels said. That’s important because it’s sustaining its traditional on-premises business as well as providing customers a path to the cloud for customers.

The company raised its full-year revenue target by 100 million euros to between €23.4 billion and €23.8 billion, and also slightly raised the lower end of its operating profit forecast. The company has a “very good shot” at stabilizing margins in the current quarter, Chief Financial Officer Luka Mucic said on the conference call. “Going into 2018 we see a margin turnaround.”

McDermott also was bullish on the call. “We are gaining share against our competitors. SAP is growing faster in the cloud – and we are doing it organically,” McDermott said. He contrasted that to the acquisition-driven approaches of some rivals such as Oracle Corp., Salesforce.com and Workday Inc.

Photo: SAP

A message from John Furrier, co-founder of SiliconANGLE:

Your vote of support is important to us and it helps us keep the content FREE.

One click below supports our mission to provide free, deep, and relevant content.  

Join our community on YouTube

Join the community that includes more than 15,000 #CubeAlumni experts, including Amazon.com CEO Andy Jassy, Dell Technologies founder and CEO Michael Dell, Intel CEO Pat Gelsinger, and many more luminaries and experts.

“TheCUBE is an important partner to the industry. You guys really are a part of our events and we really appreciate you coming and I know people appreciate the content you create as well” – Andy Jassy

THANK YOU