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SAP Raises 2020 Profit Target But Cloud Growth Wobbles
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SAP Cloud Forecast Wobbles as Co-CEOs Plan Era After McDermott
(Bloomberg) -- Want the lowdown on European markets? In your inbox before the open, every day. Sign up here.SAP SE raised its outlook for adjusted operating profit but cloud revenue forecasts wavered, as the software giant’s new chief executive officers’ plot how to compete with U.S. rivals.Europe’s biggest tech company by market value has spent the past few years concentrating on growing its cloud business.However SAP’s fourth-quarter results were “mixed,” analysts at MainFirst said, adding that while licenses and operating margins were ahead of predictions, cloud revenues came in below expectations.The company’s shares fell as much as 2.7% in early trading Tuesday.The results mark the first full quarter under co-CEOs Christian Klein and Jennifer Morgan, after chief Bill McDermott stepped down in October after 10 years at the helm.McDermott spent $26 billion on six major cloud acquisitions and was the main advocate for the $8 billion acquisition of cloud-software company Qualtrics International Inc., the company’s largest-ever deal.Klein and Morgan must find ways to compete with younger companies like Salesforce.com Inc. and Workday Inc. while encumbered by a traditional enterprise software business.SAP reported a 25% increase in new cloud bookings to 2.27 billion euros ($2.5 billion) for 2019, but reduced its guidance for 2020 cloud revenue growth, while the mid-point of operating-profit growth was below prior guidance.Over the fourth quarter, revenue at the Qualtrics business hit 156 million euros.One of SAP’s biggest customers moved a large chunk of its business to the cloud, which contributed 10 percentage points to the total new cloud-bookings growth of 19%. This suggests that new growth, excluding this contribution, was in high single digits, analysts at MainFirst said.Lower growth in the high-margin cloud business is also likely to weigh on the company’s overall profitability, Jefferies analyst Julian Serafini said in a note on Tuesday.SAP lifted its estimates for adjusted operating profits to 8.9 billion euros to 9.3 billion euros, from 8.8 billion euros to 9.1 billion euros. That compares with an average analyst estimate of 8.82 billion euros, according to estimates compiled by Bloomberg.“We are running our business at a global scale quite resilient against any kind of geopolitical tensions and trade sanctions in the world,” Klein said in an interview with Bloomberg TV Tuesday.For the fourth quarter, SAP reported adjusted operating profit rose 12% to 2.84 billion euros, compared with an estimate of 2.85 billion euros. Revenue rose 8.3% to 8.05 billion euros, compared with estimates of 8.09 billion euros.(Updates with comments from SAP co-CEO Christian Klein and additional context)\--With assistance from Kit Rees.To contact the reporter on this story: Sarah Syed in London at ssyed35@bloomberg.netTo contact the editors responsible for this story: Giles Turner at gturner35@bloomberg.net, Amy ThomsonFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
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SAP Raises 2020 Profit Target But Cloud Growth Wobbles
(Bloomberg) -- Want the lowdown on European markets? In your inbox before the open, every day. Sign up here.SAP SE raised its outlook for adjusted operating profit this year after the company reported “strong business momentum” and met analyst estimates for the fourth quarter, but cloud revenue growth wavered.SAP lifted its estimates for adjusted operating profits to 8.9 billion euros ($9.8 billion) to 9.3 billion euros, from 8.8 billion euros to 9.1 billion euros. That compares with an estimate of 8.82 billion euros, according to estimates compiled by Bloomberg.“We are running our business at a global scale quite resilient against any kind of geopolitical tensions and trade sanctions in the world,” Co-chief executive officer Christian Klein said in an interview with Bloomberg TV Tuesday.However SAP’s fourth quarter results were “mixed,” analysts and MainFirst said, adding that while licenses and operating margins were ahead of predictions, cloud revenues came in below expectations.The company’s shares fell 1.3% in early trading Tuesday.For the fourth quarter, SAP reported non-IFRS operating profit rose 12% to 2.84 billion euros, compared with an estimate of 2.85 billion euros. Revenue rose 8.3% to 8.05 billion euros, compared with an estimate of 8.09 billion euros.SAP reported a 25% increase in new cloud bookings to 2.27 billion euros ($2.5 billion) for the full-year 2019, the metric most closely watched by analysts.But SAP reduced its guidance for 2020 cloud revenue growth, while the mid-point of operating-profit growth was below prior guidance.Klein, 39, who has spent the past 20 years at SAP, after joining as a student in 1999 became co-CEO alongside Jennifer Morgan, 48, in October. Morgan was the first American woman on the company’s executive board and is the first female chief executive of a DAX-listed company.(Updates with comments from SAP co-CEO Christian Klein and additional context)To contact the reporter on this story: Sarah Syed in London at ssyed35@bloomberg.netTo contact the editors responsible for this story: Giles Turner at gturner35@bloomberg.net, Peter Elstrom, Vlad SavovFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
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