SAP Relieves Investors as New Products Help Boost Profit
SAP AG (SAP), the biggest maker of business-management software, reported higher earnings on rising cloud and database revenue, alleviating investor concerns that stiffer competition is hurting profitability.
Third-quarter operating profit adjusted for some items rose 5 percent to 1.3 billion euros ($1.8 billion), also helped by lower costs, Walldorf, Germany-based SAP said today. The company kept its full-year forecasts when excluding currency swings, sending its stock up 4.8 percent, the most in more than three years.
SAP’s report shows its expansion to areas such as cloud-based programs is helping to offset slowing demand for its older enterprise applications. That’s a relief for investors after reports by archrival Oracle Corp. (ORCL) and International Business Machines Corp. (IBM) missed projections as nimbler competitors’ Web-based products gained popularity.
“After what we had seen from rivals in the U.S., and after seeing the currency moves as they stand, we should be content with SAP reiterating their forecast,” said Mirko Maier, an analyst at Landesbank Baden-Wuerttemberg in Stuttgart. “It’s a relief.”
SAP rose 2.55 euros to close at 56.06 euros in Frankfurt, after climbing as much as 8.2 percent. That pared the shares’ decline this year to about 8 percent. Oracle added 0.5 percent to $33.08 at 1:02 p.m. in New York.
Analysts including Kai Korschelt at Deutsche Bank AG had earlier said SAP might lower its full-year revenue forecast. Thomas Becker of Commerzbank in Frankfurt said SAP reiterating its forecasts is “catching most market participants by surprise.”
Third-quarter revenue from cloud subscriptions more than doubled to 197 million euros, amounting to about a sixth of software sales. Revenue from the Hana database product grew 79 percent to 149 million euros and SAP said it has more than 2,100 customers using the software. Analysts predicted Hana revenue of 131.5 million euros. Software-license sales, an indicator of future income, fell for a second straight quarter.
SAP reiterated a July forecast for double-digit percentage growth for software and software-related services revenue this year when excluding currency swings. Assuming exchange rates remain at September levels, software sales will be negatively affected by 5 percentage points by currency swings, while operating profit will be hurt by 7 percentage points, SAP said.
“SAP had a very strong performance in the third quarter, considering the mixed macroeconomic environment and the strong currency headwinds,” Chief Financial Officer Werner Brandt said in the statement.
On a call with journalists, he said swings by the dollar and the yen affected the company. “It’s an effect everyone is seeing in all industries,” he said.
The euro is the best performer among a basket of 10 developed-market currencies this year while the Japanese Yen is the worst, meaning SAP’s revenues generated in Japan and other countries are lower when translated into euros.
Third-quarter reported revenue rose about 2 percent to 4.05 billion euros. Analysts projected revenue of 4.16 billion and adjusted operating profit of 1.32 billion euros.
Software licenses fell 5 percent to 975 million euros in the period. Analysts had predicted 988 million euros, according to the average of six estimates compiled by Bloomberg.
“While a miss, we believe this is better than feared,” Daud Khan, an analyst at Berenberg Bank in London, said in a note to clients.
Software sales from Asia Pacific dropped 9 percent, while declining 13 percent in the Americas. Excluding currency effects, software sales rose 2 percent.
To meet SAP’s goal for 650 million euros to 700 million euros in Hana revenue for the full year, sales of the product in the fourth quarter will have to almost match those of the first three quarters combined, spokesman Daniel Reinhardt said.
In July, SAP reported its first software-sales decline in more than three years as larger technology companies face stiffer competition from more agile Internet-based rivals. To fight back, co-CEOs Jim Hagemann Snabe and Bill McDermott, who will become the company’s sole chief when Snabe steps down in May, have spent more than $12 billion on takeovers in California’s Silicon Valley since 2010.
Oracle on Sept. 18 issued a weaker-than-projected outlook for the remainder of the year, warning that it still has to close big corporate deals to remain on course. Smaller competitors including Salesforce.com Inc. (CRM) and Workday Inc. (WDAY) are boosting sales with Internet-based programs.
IBM, the largest computer-services provider, this month reported a sixth straight quarterly sales drop. Accenture Plc (ACN), the world’s second-largest technology-consulting company, last month forecast earnings that may fall short of analysts’ estimates.