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SAP SE (SAP) Q1 Earnings Improve on a Year-Over-Year Basis

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SAP SE (SAP - Free Report) reported first-quarter 2021 non-IFRS earnings of €1.40 per share ($1.69), which increased 63% from the year-ago quarter, owing to strong contribution from Sapphire Ventures.

The Zacks Consensus Estimate for earnings was pegged at $1.13.

Total revenues, on a non-IFRS basis, were €6.348 billion ($7.651 billion), down 3% year over year (up 2% constant currency or cc).

Cloud Results

Current cloud backlog — a key indicator of go-to market success in cloud business — increased 15% (up 19% at cc) to €7.63 billion.

SAP SE Price, Consensus and EPS Surprise

 

SAP SE Price, Consensus and EPS Surprise

SAP SE price-consensus-eps-surprise-chart | SAP SE Quote

On a non-IFRS basis, Cloud and software business reported revenues (85.5% of total revenues) of €5.43 billion, up 1% year over year (up 6% at cc).

Cloud revenues were €2.15 billion, up 7% year over year on a non-IFRS basis (up 13% at cc).

Software licenses and support revenues totaled €3.28 billion, down 3% (up 1% at cc) year over year. The company further noted that non-IFRS software licenses revenues of €0.48 billion, rose 7% (up 11% at cc) year over year.

Cloud revenues — related to Software as a Service (SaaS)/Platform as a Service (PaaS) — climbed 14% at cc to €2.052 billion. Cloud revenues — related to Infrastructure as a Service (IaaS) — rallied 11% year over year at cc to €228 million.

Services business (14.5% of total revenues) reported revenues of €919 million, down 18% from the year-ago quarter (down 14% at cc).

The company has three reportable segments — Applications, Technology & Support (AT&S), Qualtrics and Services. In the beginning of 2021, the Concur segment was dissolved and integrated into the AT&S segment and the Services segment.

Notably, AT&S revenues dipped 1% (up 4% at cc) to €5.314 billion. Qualtrics segment revenues surged 25% (up 37% at cc) to €202 million. Revenues in the Services segment declined 12% (down 8% at cc) to €800 million on a year-over-year basis.

Expanding Clientele Remains Noteworthy

S/4HANA adoption rallied more than 16% year over year to around 16,400 customers. In the reported quarter, net new customers comprised 50% of additional S/4HANA customers. Notably, an increasing number of companies have begun deploying S/4HANA solution in part or entirely in the cloud.

SAP’s clientele continues to expand with the addition of Unilever (UL - Free Report) , AstraZeneca (AZN - Free Report) , BioNTech, IKEA, Nippon Express, BMW, Toshiba Corporation, Clemson University, Yamaha Motor Company, Deichmann, B. Braun, and Zalando, among others.

Markedly, companies such as AkzoNobel, Daikin Chemicals, CONA Services, Google, Olam International, Bosch Siemens Hausgeräte, LIVEKINDLY Collective, Douglas, Peloton (PTON - Free Report) , and Chobani went live on SAP solutions, during the reported quarter.

SAP’s business technology platform comprises SAP HANA, SAP Data Warehouse Cloud, SAP Cloud Platform, SAP Analytics Cloud, SAP Intelligent Robotic Process Automation and SAP Data Intelligence solutions. The platform continues to gain traction among enterprises.

Further, Qualtrics Experience Management solutions were selected by LIXIL, Mitsubishi Electric Corporation, Singapore Post, Los Angeles County Public Health, Bank of Montreal, Royal Caribbean International, among others, in the reported quarter.

Margin Details

Non-IFRS gross margin of 72.3% expanded 250 basis points (bps) from the year-ago quarter’s figure.

SAP reported a non-IFRS operating expense of €4.609 billion, down 9% from the year-ago quarter’s level (down 4% at cc).

Non-IFRS operating profit of €1.741 billion improved 17% on a year-over-year basis (up 24% at cc).

Consequently, non-IFRS operating margin of 27.4% expanded 470 bps on a year-over-year basis. At cc, the figure came in at 27.6%, expanding 490 bps.

Balance Sheet & Cash Flow

As of Mar 31, 2021, SAP had cash and cash equivalents of €10.332 billion compared with €5.311 billion as of Dec 31, 2020.

The company generated €3.085 billion of operating cash in the reported quarter compared with €2.1 billion in the fourth quarter of 2020.

Free cash flow came in at €2.848 billion compared with previous quarter’s €1.829 billion.

2021 Outlook Revised

As stated in the first-quarter preliminary results, SAP raised its 2021 outlook driven by strength in its new cloud business and expectations of macroeconomic improvement owing to global vaccine rollout.

For 2021, SAP anticipates non-IFRS cloud revenues in the range of €9.2 billion to €9.5 billion, up 14-18% at cc. The company earlier had projected cloud revenues between €9.1 billion and €9.5 billion on a non-IFRS basis, up 13-18% at cc.

Non-IFRS cloud and software revenue is now projected between €23.4 billion and €23.8 billion, up 1-2% at cc. The company earlier had projected non-IFRS cloud and software revenues in the range of €23.3 billion to 23.8 billion, flat to up 2% at cc

However, SAP continues to project non-IFRS operating profit at cc in the range of €7.8 billion to €8.2 billion, down 1- 6% at cc.

Zacks Rank

SAP currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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