- Cloud subscription and support revenue increase 33 percent
- Company reiterates operating profit forecast for 2016
SAP SE reported sales that missed analysts’ estimates as some deals in the Americas region were signed later than expected, though the software maker reiterated its forecast for the year.
Revenue rose 5.1 percent to 4.73 billion euros ($5.4 billion) in the first quarter, compared with analysts’ average estimate of 4.82 billion euros, according to data compiled by Bloomberg. Operating profit was 1.1 billion euros, Walldorf, Germany-based SAP said in a statement, compared with analysts’ estimate of 1.15 billion.
The announcement of results Friday night in Germany came ahead of SAP’s full first-quarter report scheduled for April 20.
Chief Executive Officer Bill McDermott told reporters that some contracts in the Americas were pushed into April, setting up a strong second quarter. He also said SAP is expanding its profitability more effectively than competitor Oracle Corp., which is also undertaking a transition from programs companies install on their own servers to those rented as an online cloud service.
Changing Business Model
“We’ve proven we can transform our company and diversify our business model while still operating in a very profitable way,” McDermott said. “Even in a quarter where we may not have gotten everything we wanted on the revenue side we still did substantially better than our peer group competitor.”
SAP cited political and economic instability in Latin American, “in particular in Brazil,” as a reason for the “slower than anticipated” sales performance in the first quarter.
The company reiterated its 2016 forecast of adjusted earnings before interest and taxes of 6.4 billion euros to 6.7 billion euros in constant currencies. SAP in January raised the top end of its 2017 outlook for sales and increased the lower end of its operating profit outlook for next year.
SAP’s operating margin is being squeezed as it sells customers more subscriptions instead of software outright, deferring revenue into the future. The company could reach a 31.5 percent margin by 2020, Bank of America Merrill Lynch said in a note to clients this month. That’s up from 27 percent last year, but still short of the 35 percent SAP had once promised for 2017.
The company, which competes with Oracle, Workday Inc. and Salesforce.com Inc. in software for managing businesses’ sales, HR and production, is undertaking a transition to a new product suite called S/4 Hana. The software promises faster computation times and the ability for customers to run it in their data centers or rent the functions over the Internet. The company said it now has more than 3,200 customers for S/4.
McDermott, whose contract has been extended five years until 2021, is counting on sales of new products to boost sales and profits in part by making SAP less reliant on re-selling database software from Oracle, IBM and Microsoft Corp. Businesses install database systems alongside SAP’s applications to store the data the programs need, and Hana lets SAP own more of that software stack itself.
During the quarter, SAP’s software license sales declined 13 percent to 610 million euros, compared with the average estimate of 697 million euros. Cloud subscriptions and support revenue gained 33 percent to 680 million euros compared with the 675 million average estimate.
Shares of SAP have fallen 8.4 percent this year, compared with a 9.3 percent decline in Germany’s Dax Index of blue-chip stocks.