Cloud services lift SAP sales, costs tether profit

SAP's headquarters in Walldorf, Germany.
SAP's headquarters in Walldorf, Germany.

Newer cloud services powered a rise in second-quarter revenue at Germany's SAP, but higher costs curbed profit growth, results from Europe's most valuable technology firm showed yesterday.

Core profits excluding special items rose 3% to EUR1.57 billion at constant currency rates, shy of the EUR1.59 billion expected by analysts.

Revenue of EUR5.78 billion ($6.65 billion) was up 10.4% and topped the EUR5.71 billion expected by analysts polled by Reuters.

Classic software licence and support business revenue rose 4% to EUR3.83 billion, which brokerage Baader noted outpaced a 4% fall at rival Oracle.

Cloud subscriptions and support revenue rose 27% to EUR932 million in constant currencies, below the 33% analysts, on average, had expected.

SAP CEO Bill McDermott said some cloud deals which the company had expected to sign in second quarter had been delayed.

"The cloud story is completely intact," McDermott told reporters. "The pipeline for [the third quarter] and beyond is fantastic."

Costs up

The world's biggest maker of business planning software used by multinationals said research and development costs rose 19%, while sales and marketing costs were up 16% fuelled by higher spending on its push into cloud services.

Year-ago figures benefited from prior restructuring benefits, SAP executives said.

Including special items under IFRS accounting standards, operating profit fell 27%, weighed down by restructuring and stock option costs. The company has reorganised its customer services organisation to focus more on its cloud businesses.

SAP shares which hit all-time highs in June dipped 0.4% in early trade in Frankfurt.

SAP expects to meet or slightly beat its 2017 financial targets, it said.

Those forecasts exclude the impact of currency swings, where a recent rise in the euro has slightly dented its international results.

"We expect continuing momentum in the second half and confidently raise our guidance for the full year," McDermott said in a statement.

SAP raised its sales forecast by EUR100 million for the full year, to a range of EUR23.3 billion to EUR23.7 billion. Its operating profit target was unchanged at around EUR6.8 billion to EUR7 billion.

Analysts expect a profit of EUR7.1 billion on revenue of EUR23.9 billion, a Reuters poll showed.

SAP, along with rival Oracle, must boost Internet-based sales to head off pure cloud competitors Salesforce, Workday and Amazon's Web services unit, whose sales are all growing two or more times faster.

SAP also announced a planned EUR500 million share buyback to start shortly and to be carried out through the year. The stepped up repurchases reflect strong first half free cash flow.

Have your say
Facebook icon
Youtube play icon