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SAP SE (SAP) Q3 Earnings & Revenues Improve Y/Y, View Lifted

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SAP SE (SAP - Free Report) reported third-quarter 2021 non-IFRS earnings of €1.74 per share ($2.05), up 2% from the year-ago quarter’s levels. The upside can be attributed to strong contribution from Sapphire Ventures.

Total revenues, on a non-IFRS basis, were €6.845 billion ($8.071 billion), up 5% year over year (up 5% at constant currency or cc).

Cloud Results

Current cloud backlog — a key indicator of go-to market success in cloud business — increased 24% (up 22% at cc) to €8.17 billion.

On a non-IFRS basis, Cloud and software business reported revenues (86.3% of total revenues) of €5.91 billion, up 7% year over year (up 6% at cc).

SAP SE Price, Consensus and EPS Surprise

 

SAP SE Price, Consensus and EPS Surprise

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

 

Cloud revenues were €2.386 billion, up 20% year over year on a non-IFRS basis (up 20% at cc).

Software licenses and support revenues totaled €3.524 billion, down 1% (down 1% at cc) year over year. The company further noted that non-IFRS software licenses revenues of €0.66 billion, declined 8% (down 8% at cc) year over year.

Cloud revenues — related to Software as a Service (SaaS)/Platform as a Service (PaaS) — increased 21% at cc to €2.148 billion. Cloud revenues — related to Infrastructure as a Service (IaaS) — rallied 15% year over year at cc to €238 million.

Services business (13.7% of total revenues) delivered revenues of €0.93 billion, down 6% from the year-ago quarter’s levels (down 6% 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.

AT&S revenues were up 5% year over year (up 5% at cc) to €5.76 billion. Qualtrics segment revenues rallied 38% (up 39% at cc) to €233 million. Revenues in the Services segment declined 1% (down 1% at cc) to €803 million on a year-over-year basis.

Expanding Clientele Bodes Well

Rise with SAP solution witnessed the addition of more than 300 new clients including Asda Stores Ltd, EG Group, Cirque du Soleil, HCL, Röhm, Tate & Lyle Americas, KTM Fahrrad, Ingram Micro, and Sky Italia among others in the quarter under review. SAP launched Rise With SAP offering in first-quarter 2021.

S/4HANA adoption rallied more than 16% year over year to around 17,500 customers. In the reported quarter, net new customers comprised 60% of additional S/4HANA customers. More companies have begun deploying the S/4HANA solution in part or entirely in the cloud. SAP S/4HANA Cloud revenue increased 46% (up 46% at cc) to €276 million.

SAP’s clientele continues to expand with the addition of VMware , Continental, Adidas, Bayer, U.S. Department of Defense, Siemens Energy, University of Florida, FAW-Volkswagen Automotive and People’s Insurance Company of China (PICC), among others.

Companies like Lycamobile, E.ON, Atos and Generali China Life Insurance went live on SAP solutions, during the reported quarter.

In the quarter under review, Yamaha Corporation, SoftBank, Dufry International, Office Depot Mexico and Reckitt selected SAP’s business technology platform that comprises SAP HANA, SAP Data Warehouse Cloud, SAP Cloud Platform, SAP Analytics Cloud, SAP Intelligent Robotic Process Automation and SAP Data Intelligence solutions.

In September 2021, SAP rolled out SAP Product Footprint Management solution to help business enterprises reduce their carbon footprint and drive sustainability. The cloud-powered solution is built on the company’s SAP Business Technology Platform.

In third-quarter 2021, the company also launched SAP Fioneer worldwide. SAP Fioneer is the company’s financial services joint venture established in collaboration with Dediq GmbH.

Margin Details

Non-IFRS gross margin of 73.6% contracted 10 basis points (bps) from the year-ago quarter’s figure.

SAP reported a non-IFRS operating expense of €4.742 billion, up 6% from the year-ago quarter’s level (up 6% at cc).

Non-IFRS operating profit of €2.102 billion increased 2% on a year-over-year basis (up 2% at cc).

Non-IFRS operating margin of 30.7% contracted 90 bps on a year-over-year basis. At cc, the figure came in at 31% and contracted 70 bps.

Balance Sheet & Cash Flow

As of Sep 30, 2021, SAP had cash and cash equivalents of €7.943 billion compared with €7.764 billion as of Jun 30, 2021.

The company generated €1.183 billion of operating cash in the reported quarter compared with €686 million in the prior quarter.

Free cash flow came in at €881 million compared with the previous quarter’s figure of €403 million.

2021 Outlook Revised

SAP raised 2021 outlook owing to strength in its new cloud business and expectations of macroeconomic improvement stemming from global vaccine rollout.

For 2021, SAP anticipates non-IFRS cloud revenues in the range of €9.4-€9.6 billion, which suggests an increase of 16-19% at cc. The company earlier had projected cloud revenues between €9.3 billion and €9.5 billion on a non-IFRS basis, up 15-18% at cc.

Non-IFRS cloud and software revenue is now expected between €23.8 billion and €24.2 billion, calling for a 2-4% rise at cc. The company earlier had projected non-IFRS cloud and software revenues in the range of €23.6-24 billion, indicating a 2-3% rise at cc.

SAP now projects non-IFRS operating profit at cc in the range of €8.1-€8.3 billion, indicating flat to down 2% at cc. Earlier, SAP guided non-IFRS operating profit in the range of €7.95-€8.25 billion, indicating flat to down 4% at cc.

Zacks Rank & Stocks to Consider

SAP currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector worth considering are Jabil (JBL - Free Report) and HP Inc (HPQ - Free Report) . The stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The long-term earnings growth rate for Jabil and HP Inc is currently pegged at 12% and 8.2%, respectively.


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