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SAP Drops as Cloud Growth Disappoints Analysts

Oct. 19, 2017
SAP shares fell as much as 2.9% in large thanks to fewer new cloud bookings than expected. CEO Bill McDermott contested that analysis, though, saying the company is “rocking the cloud.”

SAP SE fell in early Frankfurt trading despite raising its sales forecast, as third-quarter revenue at Europe’s largest software company slightly missed analyst estimates.

SAP fell as much as 2.9%, the steepest intraday loss since June, even as it raised its sales forecast for 2017 as more customers signed up for the company’s flagship S/4 Hana business software. Revenue came in at 5.6 billion euros ($6.63 billion), slightly below consensus, and analysts from Commerzbank AG and Morgan Stanley pointed to what they saw as weaker-than-expected subscriptions for its cloud business.

“The negative was the cloud business,” Adam Wood, an analyst at Morgan Stanley, wrote in a note to clients. While some of the sales were impacted by currency effects, a 19% increase in new cloud bookings is a “disappointing number,” he said.

SAP is investing heavily in its cloud-based products and services to challenge sector leader Inc., and sees online software subscriptions outpacing new on-premise licenses by 2018. CEO Bill McDermott contested the analysts’ view, telling reporters in a call that SAP is “rocking the cloud,” and pointed to strong new bookings in countries including China.

McDermott also managed to win new clients with a major update of SAP’s accounting, manufacturing and logistics software. S/4 Hana added 600 customers in the third quarter to reach more than 6,900 users, a greater intake than in the previous three-month period. 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 increased its full-year revenue target by 100 million euros ($118.41 million) to between 23.4 billion euros and 23.8 billion euros (between $27.71 billion and $28.18 billion), citing momentum from S/4 Hana. The company also slightly raised the lower end of its operating profit outlook for the year, as well as a forecast for cloud and software revenue.

Solid Growth

“Business trends are consistent with prior quarters with growth still solid and the rate of margin decline easing,” Natixis analysts led by Stuart Jeffrey said in an emailed note. “While underlying business trends appear good, the scope for consensus earnings upgrades appears limited at this point in time — consistent with results over the past year.”

Operating profit, excluding share-based compensation, amortization and other charges, was 1.64 billion euros ($1.94 billion), missing the average estimate of 1.66 billion euros ($1.97 billion). Software license sales, a measure of revenue potential tied to traditional on-premise software was 3.72 billion euros ($4.40 billion).

SAP fell 2.6%, to 92.51 euros ($109.54) a share at 10:04 a.m. local time, giving Germany’s most valuable company a market cap of 114 billion euros ($134.98 billion). The shares have gained about 12% this year.

SAP has completed more than half of its 500 million-euro ($592.03 million) share buyback program and powered through “significant currency headwinds” in the third quarter, McDermott told reporters.

While exchange rates will remain an issue in the coming three quarters, 2017 will mark the through year when it comes to margins, Knut Woller, a Baader Bank analyst, said in an emailed note.

By Stefan Nicola

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