UPDATED 13:01 EST / JULY 21 2021

CLOUD

SAP posts solid second-quarter results fueled by cloud growth but shares sag

Enterprise software giant SAP SE reported today that its revenue rose 3% during the second quarter, to 6.67 billion euros, thanks in significant measure to a 17% adjusted sales increase achieved by its cloud business.

The company expects the cloud business to continue fueling top-line growth in the coming quarters. Together with its second-quarter earnings figures, SAP published an updated forecast for the current fiscal year that expects cloud and software revenues of 23.6 billion to 24 billion euros, a 200 million euro jump from the previous forecast. SAP also added 150 million to the lower boundary of its operating profit projection, which now stands at 7.95 billion to 8.25 billion euros.

“This has been another strong quarter with accelerating growth for SAP’s cloud portfolio,” said SAP Chief Financial Officer Luka Mucic. “We saw excellent customer momentum and adoption.”

Walldorf, Germany-based SAP makes software products that are used by a sizable percentage of the world’s large enterprises to manage core business tasks such as accounting and supply chain operations. Like other incumbent software makers, the company is moving toward selling its applications as cloud services. The progress of this product shift has been the main story in SAP’s earnings reports for the last few quarters.

Of the 6.67 billion euros in total revenue SAP generated during the second quarter, 2.27 billion euros came from its cloud business. The unit’s quarterly sales represent a 17% year-over-year increase on an adjusted basis and an 11% improvement when measured according to IFRS accounting standards. Current cloud backlog, a measure of future revenue, rose 20%.

The growth is partially credited to the success of Rise with SAP, a software and services bundle launched last year that aims to, among others, make it easier for SAP customers to move from the on-premises versions of its applications to the cloud editions. More than 250 customers signed up for Rise with SAP in the second quarter. That’s nearly double the total number of customers the service had in January, shortly after its official debut.

The new Rise with SAP customers that signed up during the quarter included several major brands, which could give SAP a marketing boost as it works to persuade other customers to adopt the offering. Among the brands that adopted Rise with SAP were Advanced Micro Devices Inc. and the NBA.

Another bright spot in the earnings data from SAP’s cloud business was the financial performance of S/4HANA. That’s the cloud-friendly version of SAP’s flagship software product, its enterprise resource planning platform.

The company says the current cloud backlog for the platform jumped 48% year-over-year, thanks partly to the influx of more than 600 new customers. More than half of those customers are net new, meaning SAP is not only convincing existing ERP users to switch to its cloud platform but also winning business from organizations that didn’t use its ERP software before.

A more nascent though quite important part of SAP’s cloud business saw strong growth as well in the quarter. SAP said its Signavio subsidiary saw its current cloud backlog grew in the “triple digits,” without disclosing absolute numbers. Signavio makes software products that make it easier for companies to move from legacy versions of SAP’s ERP software to S/4HANA. The software is also a component of the Rise with SAP offering.

The strong uptake of Signavio’s software in the second quarter can be seen as a positive sign about the future growth of Rise with SAP and S/4HANA.

“We’re seeing strong adoption of our cloud portfolio as customers select SAP for their business transformation,” said SAP Chief Executive Officer Christian Klein. “Our strategy is working. This is the third straight quarter of strong execution, and we continue to deliver unparalleled customer value through the strength of our platform and applications.”

In a CNBC interview this morning, Klein said SAP expects the company’s cloud backlog to see “further acceleration” during the second half of the year and even faster growth in 2022.

SAP’s second-quarter earnings were greeted by mixed reactions from investors. Shares of the company are down more than 3% in trading this morning. Analysts who spoke to Reuters explained that the increased revenue and profit forecast SAP published for the full quarter fell short of market expectations.

SAP’s results for the second quarter, however, matched or surpassed the expectations of analysts polled by Refinitiv. The company’s $6.67 billion in revenue during the quarter was in line with the Refinitiv median projection. Operating profit, which increased 3% to 1.92 billion euros, surpassed the median estimate. 

Photo: SAP

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