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SAP posts 'mixed bag' of profit miss, raised 2018 forecasts

Oct 18 2018 10:01
Stefan Nicola, Bloomberg

SAP, Europe’s biggest technology company, raised its projections for the year due to accelerating momentum for its cloud business, but third quarter profit missed analyst estimates.

SAP shares fell as much as 3.6%, despite the company also increasing its operating profit forecast.

New cloud bookings, a keenly watched metric because it indicates future revenue, rose 37% in the third quarter at constant currencies. In the previous period new bookings had grown slower than overall cloud revenue, disappointing some analysts at the time.

SAP’s results are a "mixed bag," Baader Helvea Equity Research analyst Knut Woller said on Thursday. While the raised forecast is positive, license revenues, cloud and software and non-IFRS operating profit missed estimates, he said in an e-mailed note.

Chief executive officer Bill McDermott is shifting SAP’s focus toward cloud services as it challenges rivals such as Salesforce.com and Oracle. He told Bloomberg TV this week that the company now generates more revenue from the cloud business model than from on-premise products.

The company now expects non-IFRS cloud subscriptions and support revenue of as much as €5.25bn this year, up from a previous maximum expectation of €5.2bn.

SAP chief financial officer Luka Mucic says he "can absolutely not see any signs of deceleration," as strong cloud growth overshadows decline in on-premise software sales, in an interview with Bloomberg TV.

Operating profit came in at €1.74bn, lower than the €1.8bn average estimate. But it raised its outlook for non-IFRS operating profit this year by €25m to as much as €7.525bn.

"Margins were more stubborn than some (including us) have hoped," said Walter Pritchard, analyst at Citigroup.

SAP’s flagship S/4 Hana software added customers in the July-September period to reach more than 9 500 total users, up from around 8 900 at the end of June. The software allows businesses to run tasks on their own machines or in a cloud-computing arrangement hosted by SAP or one of its partners.

The company this year made its biggest acquisition in more than three years when it bought Callidus Software for about $2.4bn, gaining access to new sales analytics and customer engagement tools.

The C/4 Hana platform that deploys these tools saw triple-digit growth in the quarter, winning clients including Giorgio Armani and Colgate-Palmolive.

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