SAP SE (SAP - Free Report) recently reported preliminary second-quarter 2020 results. The company will release final second-quarter 2020 results in detail on Jul 27.
Improving business activity during the second quarter aided recovery in Software licenses revenues. Management is optimistic about performance across the APJ region, which witnessed robust recovery in software licenses revenues.
The company notes that solid current cloud backlog with high demand for e-commerce, digital supply chain, Qualtrics and cloud platform solutions contributed to growth.
Further, lower spend on travel and virtualized events, and reduction in facility related costs accelerated margin expansion, amid the challenging macro environment.
Following the news, shares of SAP are up 5.7% in the pre-market trading on Jul 9. Notably, shares of SAP have returned 9.7% year to date compared with the industry’s rally of 27.7%.
Nevertheless, Cloud revenues were impacted by lower pay-as-you-go transactional revenues owing to coronavirus crisis.
Encouraging Q2 Preliminary Results
Per the preliminary second-quarter results, SAP reported total revenues, on a non-IFRS basis, of €6.74 billion ($7.42 billion). The figure rose 1% year over year, up 1% at constant currency (cc).
The Zacks Consensus Estimate for revenues is currently pegged at $7.28 billion.
On a non-IFRS basis, Cloud and software business reported revenues of €5.71 billion, up 3% year over year (up 3% at cc).
Cloud revenues came in at €2.04 billion, up 19% year over year on a non-IFRS basis (up 18% at cc).
The company noted Software licenses revenues of €0.77 billion, down 18% (down 18% at cc) year over year.
However, this indicates significant improvement on a quarter-over-quarter basis. In first-quarter, SAP had reported software licenses & support revenues of €451 million, which plunged 31% year on year. The downside was primarily due to the impact of the coronavirus outbreak that intensified in March and led to postponement of new business.
Operating profit of €1.96 billion grew 8% on a year-over-year basis (up 7% at cc).
Reaffirms 2020 Outlook
The company also reaffirmed 2020 projections. For 2020, SAP continues to expect non-IFRS cloud revenues in the range of €8.3-€8.7 billion, up 18-24% at cc.
Non-IFRS cloud and software revenues are anticipated between €23.4 billion and €24 billion, up 1-4% at cc.
Non-IFRS total revenues are projected in the range of €27.8-€28.5 billion, up 1-3% year over year and at cc.
Notably, the company anticipates non-IFRS operating profit in the band of €8.1-€8.7 billion.
Zacks Rank & Other Key Picks
Currently, SAP carries a Zacks Rank #2 (Buy).
Zoom Video Communications, Inc. (ZM - Free Report) , Fortinet, Inc. (FTNT - Free Report) and Nice Ltd. (NICE - Free Report) are some other top-ranked stocks worth considering in the broader computer and technology sector, each flaunting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term earnings growth rate for Zoom Video, Fortinet and Nice is pegged at 25%, 14% and 10%, respectively.
Zacks Top 10 Stocks for 2020
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2020?
Last year's 2019 Zacks Top 10 Stocks portfolio returned gains as high as +102.7%. Now a brand-new portfolio has been handpicked from over 4,000 companies covered by the Zacks Rank. Don’t miss your chance to get in on these long-term buys.
Access Zacks Top 10 Stocks for 2020 today >>