UPDATED 10:42 EDT / JANUARY 29 2021

CLOUD

SAP beats sales and earnings estimates atop continued cloud growth

SAP SE provided few surprises in its fiscal fourth-quarter earnings announcement early today, which it had previewed earlier this month, as the enterprise resource planning giant notched declines in both revenue and operating profit but beat analysts’ estimates on metrics.

The company gave an upbeat account of its aggressive campaign to move customers to the cloud, saying the short-term squeeze on revenues pressure will give way to better visibility and cross-sell opportunities. Executives in particular touted “RISE with SAP,” a combined software and service offering that it calls “business transformation-as-a-service,” which they said will drive more customers toward subscription services combining multiple SAP products.

The shift to the cloud “creates short-term revenue pressure but in the long-term customers will adopt more applications,” said Chief Executive Christian Klein (pictured). He said the RISE with SAP program has grown from 20 pilot projects to more than 130 in short measure.

Quarterly revenue fell 2% year-over-year in constant-currency terms, to $9.16 billion, slightly ahead of analysts’ estimates of $9.03 billion. Operating profit fell to $3.36 billion from $3.45 billion a year earlier. Earnings per share of $1.69 were 13 cents better than consensus estimates.

Fourth-quarter cloud revenue grew 13%, to $2.48 billion, on a constant-currency basis. SAP said that growth was depressed 2% by lower transactional revenues in its Concur travel and expense management business related to the COVID-19 pandemic. The full-year cloud backlog jumped 14% in constant currencies to $8.68 billion.

Cloud growth was offset by an 11% decline in software license revenue to $2.06 billion. That dragged down total cloud and software revenue 1% in constant currencies to $7.99 billion. SAP shares drifted down 1% in early trading on the New York Stock Exchange.

Solid foundation

Few observers see any structural weakness in SAP’s business portfolio or strategy. “Overall, the vendor’s wide coverage for organizational functionality needs coupled with enhanced usability measures make it a competitive player in almost every technology market,” said Trevor White, analyst at Nucleus Research Inc. “Nucleus expects SAP to be ideally positioned to grow as economic conditions return to normal.”

SAP reiterated the 2021 guidance it issued earlier in the month, projecting operating profit to grow 5%, to $9.96 billion, with cloud revenue of between $11 billion and $11.5 billion.

Chief Financial Officer Luca Mucic said SAP’s cloud revenue is now more than twice as large as software license revenue and the gap is expanding. That led predictable revenues in the quarter to grow from 67% to 72% of total revenue. “We have all the confidence in the world in reaching our goal of $22 billion in cloud revenue in 2025,” he said.

Klein said 900 customers adopted the firm’s S/4HANA platform in the quarter, with 40% of them net new to SAP. The company said it now has 16,000 customers for the cloud-native enterprise resource planning software, 8,700 of them live.“We are clearly gaining market share with S/4HANA,” he said.

He also touted yesterday’s successful initial public offering of its Qualtrics International Inc. subsidiary as evidence of the company’s firm financial position. Qualtrics shares closed more than 45% higher on its first trading day, earning it a current market capitalization of $22 billion. SAP paid $8 billion for Qualtrics two years ago.

“It’s a fantastic success story for both Qualtrics and SAP and we will remain Qualtrics’ most important innovation and go-to-market partner,” Klein said.

Photo: SAP

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