SAP SE met revenue and profit expectations in its fiscal fourth quarter but saw a continued slowdown in growth in both cloud subscriptions and overall revenue.

Shortly before releasing its results this morning, the enterprise resource planning giant also announced plans to acquire Callidus Software Inc., a maker of cloud-based sales force management software.

Fourth-quarter revenue rose 6 percent, to $8.48 billion, from a year ago, meeting analyst expectations. Earnings per share of $2.20 beat consensus estimates of $1.93. SAP said new cloud bookings grew 31 percent on a constant currency basis to to $735 million, hitting a target Chief Executive Bill McDermott (pictured) set in October.

Despite the slower growth, SAP executives were bullish on the company’s earnings call. “All of our pipelines look very, very good,” McDermott said. “If we’re in there competing, we’re winning most of the time.”

Investors were less impressed, bidding SAP shares down about 1.5 percent on a down day on the New York Stock Exchange. The growth numbers were “somewhat disappointing,” said Forrester Research Inc. Principal Analyst Andrew Bartels. He noted that overall revenue growth was down from 8 percent in the previous quarter and that software license declines are accelerating, shrinking by more than 5 percent. SAP has defied gravity in recent quarters by growing both its cloud subscription and on-premises software license sales, which more typically move in opposite directions.

“The traditional ERP business is going through a transition where the growth in cloud subscriptions is barely offsetting the shrinkage in license revenues,” Bartels said.  “They’re now at a point where the cannibalization of license by [software-as-a-service] is coming on strong.” The transition is likely to take about two more years, he predicted.

Charles King, president and principal analyst at Pund-IT Inc., was more positive, saying SAP has done well at managing a transition that has given many other entrenched software firms fits. “So long as cloud adoption trends and global economies remain healthy, SAP’s time in the sun seems likely to continue,” he said. SAP’s ability to move with its customers needs “is reflected in future-focused businesses like SAP Leonardo, which leverages leading edge internet of things, big data, machine learning, analytics and blockchain technologies,” he said.

SAP executives said license revenues should grow in the low single digits on a percentage basis for the year, but the trajectory is difficult to forecast. “We are prepared for everything,” said Chief Financial Officer Luka Mucic.

Full-year cloud and software revenue grew by 8 percent, meeting expectations that SAP had raised twice during the year. Software revenue rose 2 percent, to $6.06 billion, but this was the second straight quarterly decline in license sales. The good new is that SAP’s cloud subscriptions and support backlog grew 38 percent to $9.3 billion, indicating a healthy pipeline.

Total 2018 revenue of $29.1 billion was up 8 percent over the previous year in constant currency. The percentage of predictable revenue was 63 percent, up a percentage point from the previous year, indicating strong customer retention. Executives trumpeted continued strong performance of the S4/HANA ERP suite, which now counts 7,900 customers, up 46 percent from last year. Mucic said new bookings of S4/HANA in the cloud each quarter continue to exceed the collective total bookings of all previous quarters combined.

Gunning for Salesforce.com

The $2.4 billion purchase of Callidus is clearly aimed at Salesforce.com Inc.,  which dominates cloud-based customer relationship management and sales management software. “Some of the incumbents have had it pretty easy lately and we’re going to change that,” McDermott said on the analysts call.

Callidus specializes in lead targeting, quota distribution, price quote automation and sales compensation management. Its products are available on the Salesforce AppExchange, among other places. Callidus fills a gap in SAP’s portfolio, which has been primarily focused on the back office. “It gives them a presence in the market they didn’t have before,” said Forrester’s Bartels. However, even with the addition of the $206 million in revenues that Callidus reported in its most recent full fiscal year, SAP’s sales and marketing business is less than a third that of Salesforce.com’s.

“With Callidus we get into the psyche of the sales professionals. We’re in their pipelines, the way they compose a deal and now their compensation,” McDermott said. “About 80 percent of Callidus’ revenue comes from U.S. Can you imagine what happens when we light up the international business?”

The acquisition is SAP’s first in four years and shouldn’t be seen as a harbinger of things to come, McDermott said. “Don’t think we’re in the [mergers and acquisitions] market aggressively. We’re not,” he said, calling Callidus a “tuck-in” to the company’s portfolio.

SAP uses Callidus to manage its own salesforce, McDermott added. “This will be sales people selling a product they use and love every day,” he said.

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