SAP Lifts 2012 Revenue Target as Software Beats Estimates

SAP AG (SAP), the biggest maker of business-management software, reported third-quarter software license revenue that beat analyst estimates and boosted a sales forecast. The stock rose the most in more than three months.

Sales of new software licenses, an indicator of future revenue, rose 12 percent to 1.03 billion euros ($1.3 billion) excluding currency swings, the Walldorf, Germany-based company said in a statement today. That compares with the 980 million- euro average estimate in a Bloomberg survey of analysts.

The numbers are a sign that SAP’s strategy of taking on Oracle Corp. (ORCL) and Salesforce.com Inc. (CRM) in mobile and on-demand software is working, with co-Chief Executive Officer Jim Hagemann Snabe saying today that the German company is winning market share “in all regions.” Edging out rivals may become more important as a weakening global economy curbs companies’ spending on software and maintenance.

“Walldorf is bristling with power, which is particularly astonishing given the weaker economic environment,” said Marco Guenther, an analyst at Hamburger Sparkasse who has a buy recommendation on SAP. “Looking at the recent earnings reports in the software industry, I wasn’t expecting this strong performance.”

Shares Gain

SAP shares surged as much as 4.7 percent to 55.34 euros, the biggest intraday advance since July 12, and were up 4.4 percent as of 9:24 a.m. in Frankfurt. Through yesterday, the stock had gained 30 percent this year, valuing the software maker at 64.9 billion euros. That compares with Redwood City, California-based Oracle’s 19 percent increase and San Francisco- based Salesforce.com’s 47 percent jump.

International Business Machines Corp. (IBM), the biggest computer-services company, on Oct. 16 reported revenue that fell short of estimates as clients delayed orders. Microsoft Corp. (MSFT), the largest software maker, on Oct. 18 reported profit that missed estimates on declining sales of Windows, its flagship operating system.

SAP forecast growth in software and related service sales, based on non-IFRS accounting rules, will reach the “upper end” of a range of 10.5 percent to 12.5 percent this year, helped by contribution from Ariba Inc. and SuccessFactors Inc.

Ariba, the latest acquisition to strengthen SAP’s range of programs accessed via the Web, is adding 0.5 percentage points to the previous projection for 10 percent to 12 percent revenue growth, Chief Financial Officer Werner Brandt said on a conference call.

‘Strong Pipeline’

“We have a lot of momentum with a strong pipeline going into the fourth quarter,” Snabe said on the call.

Billings from cloud contracts, a source of revenue for the next year, rose 14-fold, SAP said. Revenue from software and related services, based on non-IFRS accounting rules, advanced 13 percent at constant currencies to 3.2 billion euros, topping the 3.1 billion-euro analyst estimate.

Oracle, whose revenue declined 2.3 percent in the quarter ended August as a result of slower hardware sales, last month presented a high-end server with more memory and an updated flagship database to counter SAP.

Industrywide, global revenue from subscription software grew 23 percent to $48.3 billion last year, and is expected to increase at an average 18 percent a year from 2012 through 2016, according to IDC data.

SAP’s new software sales in Europe, the Middle East and Africa declined 1 percent in the three months through September. License revenue grew 37 percent in the Americas and 18 percent in the Asia-Pacific region including Japan.

Database Software

“The only flattish region was Europe but we’re expecting it to pick up in the fourth quarter,” co-CEO Bill McDermott said in an interview on Bloomberg TV, adding that Italy, Portugal, Greece and Spain are among the weakest markets. “The pipeline in Europe is a bit lumpy but what’s amazing is that we’re actually gaining more market share there than anywhere else.”

SAP announced software contracts with clients including the National Basketball Association and Spain’s Banco Bilbao Vizcaya Argentaria SA (BBVA) during the period.

As SAP tries to win more clients for its Hana database software, it is trying to keep costs down. The non-IFRS profit margin slid to 31.2 percent in the third quarter from 33.2 percent a year earlier.

The company confirmed its full-year profit forecast. Operating profit, excluding some items, will be in a range of 5.05 billion euros to 5.25 billion euros.

To contact the reporter on this story: Cornelius Rahn in Frankfurt at crahn2@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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