SAP Bests Oracle, Other Rivals in Shift to Cloud Computing

  • Cloud subscription sales more than doubled in third quarter
  • German sofware supplier's license growth seen besting Oracle

SAP SE’s estimate-beating quarterly results show that the German business-software provider is making swifter progress in the move to cloud computing than long-time rival Oracle Corp.

New license sales, a closely watched measure by Wall Street, rose 4 percent in its fiscal first quarter from a year earlier to 1.02 billion euros ($1.16 billion) after adjusting for foreign exchange effects. That’s the highest growth in almost two years, according to Credit Suisse AG analyst Philip Winslow. Oracle’s license sales fell 9 percent in constant currencies for the quarter ended Aug. 31.

SAP’s numbers constitute “a straight beat, which is impressive especially versus Oracle’s performance and weak emerging markets,” Thomas Becker, an analyst at Commerzbank AG in Frankfurt, said in a note to clients. SAP’s cloud software and new S/4 applications are gaining market share, he said.

Oracle, with a projected $37.8 billion in sales this year, is still almost twice SAP’s size, and its market-leading database share dwarfs that of SAP’s competitive Hana product. Yet Oracle has been struggling to allay investors’ concerns about its transition to cloud computing. Oracle shares have fallen 15 percent this year.

SAP climbed 5.4 percent to close at 63.75 euros in Frankfurt. The shares have gained 9.4 percent this year.

Single-digit license growth is low by historic industry standards, but SAP’s modest rise is respectable in an era when information-technology departments are moving computing from their servers to the cloud.

Chief Executive Officer Bill McDermott is shipping updates to SAP’s traditional finance and manufacturing software to give customers reasons to stick with SAP in their data centers, while renting them new online capabilities for customer analysis and human resources. The company is trying to protect its installed base of software that runs inside customers’ data centers, even while persuading those clients to install newer online tools that complement them.

Growth in SAP earnings and sales was also boosted by a weaker euro as SAP translates overseas sales into its home currency.

Adjusted revenue rose 17 percent to 4.99 billion euros ($5.7 billion), SAP said Tuesday, citing preliminary numbers. Adjusted operating profit climbed 19 percent to 1.62 billion euros. Analysts had predicted operating profit of 1.53 billion euros on sales of 4.93 billion euros, according to data compiled by Bloomberg. Walldorf, Germany-based SAP is scheduled to release final earnings figures on Oct. 20.

Cloud Shift

SAP in January lowered the company’s profit forecast through 2020 while giving investors a clearer view of sales resulting from new cloud-computing tools. Redwood City, California-based Oracle last month reported fiscal first-quarter revenue that fell short of analysts’ projections, crimped by a slowdown in software license sales amid a shift to cloud products.

SAP said cloud subscription and support sales during the quarter more than doubled to 600 million euros, compared with the 577 million-euro average estimate of six analysts. The company is on track to boost cloud revenue by about 30 percent this year when excluding the impact of acquisitions, analysts at Jefferies said in a note.

Customer Upgrades

As it adds cloud-computing software to its lineup, SAP is also pushing customers to upgrade to S/4, an update to its financial and manufacturing planning software released earlier this year.

Chief Financial Officer Luka Mucic said in a statement that cloud and traditional software sales were “mainly driven by excellent results in mature markets. SAP’s global resilience helped us also sail through stormy waters in emerging markets where we expect to continue to see volatility and economic challenges.”

SAP is also restructuring for a second time this year. The company plans to eliminate about 2,200 jobs in a push to hire younger workers.

The company Tuesday reiterated its financial targets for 2015, which include operating profit between 5.6 billion euros and 5.9 billion euros, excluding currency fluctuations.

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