Publications
Partners
Frankfurt - SAP raised its outlook for revenue after reporting a better-than-expected 10% quarterly sales jump, as it kept attracting customers to a new version of its flagship software.
The German software firm is now projecting sales of €23.3bn to €23.7bn for the year, based on constant currencies and up about a €100m on both ends of its previous prediction. And it’s raising its outlook on cloud and software revenue for the year to 6.5% to 8.5% growth, up from 6% to 8%. SAP also announced a share buyback of up to €500m this year.
Chief executive officer (CEO) Bill McDermott is attracting new customers through a major update of SAP’s accounting, manufacturing and logistics software called S/4 Hana.
The system had 6 300 users at the end of June, an acceleration of sales compared with 5 800 customers at the close of March, when growth had tailed off. S/4 lets businesses run software tasks on their own machines, or in a cloud-computing arrangement hosted by SAP or one of its partners.
Second-quarter revenue rose to €5.78bn, SAP reported on Thursday, compared with the €5.67bn estimate of analysts surveyed by Bloomberg. Operating profit, excluding share-based compensation, amortisation and other charges, was €1.57bn, compared with the average estimate of €1.58bn.
SAP is investing heavily in research and development and sales of its business apps, data analysis and Internet of things software, which means profit - up 4% - isn’t growing nearly as quickly as sales. It hired nearly 3 000 people in the first half of the year.
Profit margin at the Walldorf, Germany-based company remained suppressed as it spends to build cloud-computing capacity. Operating margin was 27.2%, compared to analysts’ 28.1% average estimate. Investors are looking for margins above 30% starting next year.
“If you invest in the cloud, you expand quickly - you will look at a margin impact,” McDermott said on a call with reporters. “But here’s the good news. Because we did the hiring in the first half of the year we’ll get the leverage of that in the back half” and in 2018.
While it raised its outlook on overall revenue, SAP stuck to a forecast first issued in January for 2017 operating profit of €6.8bn to €7bn. It expects 2017 cloud subscriptions and support revenue of between €3.8bn and €4.0bn at constant currencies, up as much as 34% from 2016’s €2.99bn.
Software license sales, a measure of revenue potential tied to traditional on-premise software were little changed at €1.09bn, compared with UBS analyst Michael Briest’s estimate of €1.04bn. Cloud subscription and support revenue rose 29% to €932m, compared with UBS’s estimate of €958m and Vara Research’s €923m to €996m.
Cloud computing, software licenses, and support revenue in Europe, the Middle East and Africa rose 9%, lifted by Germany and Russia. Those sales were up 8% in the Americas and 13% in the Asia-Pacific region, helped by demand in China, Japan and Australia.
SAP last week said it had suspended its South African management team, pending an investigation into news reports of a payment to a company linked to the son of the country’s president.
Shares of SAP have lost 2% since its first-quarter report April 25, while Germany’s 30-stock Dax Index was largely unchanged.
Rival Oracle’s shares reached a record closing high in June after the company reported a 58% jump in cloud software sales and a fourth-straight period of revenue gains for its fiscal fourth quarter that ended in May. IBM on Tuesday reported sales that missed estimates including a more than 5% decline in a key software and service unit.
SAP plans to hold a conference call for analysts at 8:00 New York time.
SUBSCRIBE FOR FREE UPDATE: Get Fin24's top morning business news and opinions in your inbox.
Read Fin24's top stories trending on Twitter: Fin24’s top stories
