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German software giant SAP reported better than expected second quarter earnings Wednesday with cloud related sales up 40%. $SAP raised guidance as takes on cloud giants Amazon (AWS) and Microsoft with software sales and support still it's driver

 SAP Earnings Q2 18

SAP's cloud-computing segment continued to expand, posting strong gains in its business selling web-based services to corporate customers.  $SAP is looking to gain marketshare from Microsoft $MSFT, the clear No. 2 provider of on-demand computing processing and storage behind market pioneer Amazon.com $AMZN.

Earnings

SAP SE second-quarter 2018 non-IFRS earnings of €0.98 ($1.17) per share, up 4.3% on a year-over-year basis.  Consensus was for  $1.18 per share. On IFRS basis, earnings of €0.60 (71 cents) per share increased 7.1% on a year-over-year basis. Total revenues, on non-IFRS basis, were €6.01 billion ($7.15 billion), up 4% year over year (up 10% at constant currency) beating consensus of $7.11 billion. On IFRS basis, revenues were €5.99 billion ($7.13 billion), up 3.8% year over year. New cloud bookings were up 29% (at constant currency) to €421 million.

SAP SE (ADR) NYSE: SAP

Market Reaction > Pre-market 118.75 −3.21 (-2.63%)  

"SAP is presenting a clear strategy, customers are already validating it in Q2 and we are increasing guidance as a signal that a new wave of growth has been unleashed," CEO Bill McDermott said

Highlights

  • Second quarter cloud-related sales rose to just over €1.22 billion ($1.42 billion) a 40% increase from the same period last year
  • Software licensing and support revenue still the largest portion of SAP's sales at €3.73 billion up 3% from last year

Cloud and software business

Support and Software licenses support, which is 82.4% of total revenues and includes Cloud subscriptions reported revenues of €5.25 billion, up 4% year over year (up 10% at cc). Cloud subscriptions support revenues of €1.30 billion surged up 40% on a year-over-year basis at cc (non-IFRS). Software licenses support reported revenues of €3.95 billion, up 3% at cc, on a year-over-year basis (non-IFRS). Cloud subscriptions and support revenues — Software as a Service (SaaS)/Platform as a Service (PaaS) was up 39% at cc to €1.30 billion. Cloud subscriptions and support revenues — Infrastructure as a Service (IaaS) related — rose 49% year over year to €120 million.

Services

  • Services is 17.6% of total revenues increased 3% from the year-ago quarter (up 10% at cc) to €1.13 billion.
  • Segment wise, Applications, Technology & Services revenues increased 8% at cc to €5.34 billion.
  • Business Network revenues jumped 21% at cc to €688 million.
  • Customer Experience revenues surged 65% at cc to €242 million.

SAP provides collaborative commerce capabilities (Ariba), flexible workforce management (Fieldglass), and effortless travel and expense processing (Concur) under its Business Network commerce platform. Approximately $2.4 trillion in global commerce is annually transacted in more than 180 countries through this platform.

SAP  Expanding Customer Base

S/4HANA adoption grew 41% year over year to more than 8,900 customers. In the reported quarter, almost 600 additional customers signed up, of which approximately 40% were net new customers. S/4HANA clientele continues to expand with the addition of McDonalds (China), TechnipFMC, China Sports Lemon and Spirit Airlines.

SAP’s C/4HANA customer experience solutions achieved high double-digit year-over-year growth in new cloud bookings and total revenues. Deutsche Telekom and Coty selected the solution in the reported quarter. SAP’s Human Capital management (HCM) flagship solution — SuccessFactors Employee Central — ended the quarter with more than 2,600 customers.

BMW, Telecom Argentina and MG Motors India were the customers that selected the solution in the quarter. Porsche chose SAP’s Leonardo solution in the quarter. Leonardo integrates Internet of Things (IoT), Big Data, Machine Learning, Analytics and Blockchain capabilities on the SAP Cloud platform.

Asia-Pacific & Japan (APJ) Witnessed Strong Growth APJ Cloud subscriptions & support revenues jumped more than 52% at constant currency. Cloud & software revenues increased more than 11% at constant currency. Top-line growth benefited from strong cloud revenue growth in China and Japan.

Management stated that Australia, China and India software revenues grew at double-digit rate. Europe, Middle East & Africa (EMEA) Cloud subscriptions & support revenues advanced more than 46% at constant currency. Cloud & software revenues increased more than 12% at constant currency.

Top-line growth was driven by strong cloud revenues in Germany and the United Kingdom. In the EMEA, software revenues grew at double-digit rate in the United Kingdom. Middle East and Germany reported solid single digit software revenue growth. Americas’ Cloud subscriptions & support revenues soared more than 35% at constant currency.

Cloud & software revenues increased more than 8% at constant currency. Brazil reported strong performance in cloud revenues in the quarter. Operating Margin Expands SAP reported non-IFRS operating expense of €4.37 billion, up 4% from the year-ago quarter (up 10% at cc). Non-IFRS research & development (R&D) and general & administration (G&A) expenses as percentage of revenues increased 20 basis points (bps) and 10 bps, respectively, at cc. However, selling & marketing (S&M) declined 70 bps at cc. Non-IFRS operating profit of €1.64 billion grew 4% on a year-over-year basis (up 12% at cc). Operating margin expanded 40 bps at cc to 27.6%. Segment wise, Applications,

Technology & Services profit increased 10% at cc to €2.23 billion. Business Network profit jumped 43% at cc to €139 million. Moreover, Customer Experience profit surged 80% at cc to €18 million.

Outlook

Cloud segment sales growth forecast for the full year to a range of 34% to 38%, leading to cloud subscription and services revenue of between €8.2 billion and €8.7 billion by 2020.

For 2018, SAP expects non-IFRS total revenues to come in the range of €24.975-€25.3 billion at constant currency (cc), up from the previous range of €24.8-€25.3 billion. This represents growth of 6-7.5% year over year. Non-IFRS cloud subscriptions and support revenues are now expected to be in the range of €5.050-€5.200 billion, up 34-38.0% at cc. Non-IFRS cloud and software revenues are now expected between €21.025 million and €21.250 billion, up 7.5-8.5% at cc.

Additionally, non-IFRS operating profit for 2018 is estimated to be in the band of €7.40-€7.50 billion, up from €7.35-€7.5 billion, reflecting year-over-year growth of 9-11%. Callidus is expected to provide €10 million.

Source: SAP 

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