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SAP's Q3 Earnings Decline Y/Y, Revenues Up on Cloud Strength
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SAP SE (SAP - Free Report) delivered third-quarter 2022 non-IFRS earnings of €1.12 per share ($1.13), down 36% from the year-ago quarter’s levels. The downside was caused by tougher year-over-year comparisons pertaining to the contribution from Sapphire Ventures.
Driven by strength in cloud business, SAP reported total revenues, on a non-IFRS basis, of €7.841 billion ($7.903 billion), up 15% year over year (up 5% at constant currency or cc). The company also reiterated its 2022 outlook.
Following the announcement, shares are up 5.4% in the pre-market trading on Oct 25.
Current cloud backlog — a key indicator of go-to-market success in cloud business — increased 38% (up 26% at cc) to €11.267 billion. The company’s suspension of Russian operations amid the ongoing Ukraine war reduced the current cloud backlog by nearly €64 million.
On a non-IFRS basis, the Cloud and software business (85.6% of total revenues) registered revenues of €6.71 billion, up 14% year over year (up 5% at cc).
Cloud revenues were €3.288 billion, up 38% year over year on a non-IFRS basis (up 25% at cc).
Software licenses and support revenues totaled €3.422 billion, down 3% (down 9% at cc) year over year. Non-IFRS software license revenues of €406 million declined 38% (down 42% at cc) year over year.
On a non-IFRS basis, cloud revenues — related to Software as a Service increased 26% at cc to €2.621 billion. Cloud revenues — related to the Platform as a Service — rose 44% at cc year over year to €415 million. Cloud revenues — related to Infrastructure as a Service — declined 3% at cc year over year to €252 million.
The Services business (14.4% of total revenues) delivered revenues of €1.131 billion, up 21% from the year-ago quarter’s levels (up 11% at cc). The company has two reportable segments — Applications, Technology & Services (AT&S) and Qualtrics. At the beginning of 2022, the Services segment was merged into the old Applications, Technology & Support segment, which is now re-named as the Applications, Technology & Services segment.
AT&S’ revenues were up 12% year over year (up 4% at cc) to €7.16 billion. Qualtrics segment’s revenues rallied 65% (up 42% at cc) to €384 million.
Expanding Clientele Bodes Well
The Rise with SAP solution was adopted by clients, including Alpargatas, Dabur India Limited, Fonterra, Nikon Corporation, Prada, RICOH CO, Roborock, Salzburg AG, Schneider Electric, Wistron Corporation and 11teamsports.
More companies have begun deploying the S/4HANA solution partly or entirely in the cloud. SAP S/4HANA Cloud revenues increased 98% (up 81% at cc) year over year to €546 million. SAP S/4HANA’s current cloud backlog was up 108% (up 90% at cc) year over year. In the reported quarter, Dufry International, BioNTech, Birlasoft, Bosch BASF Smart Farming, Petrobras and Wipro went live on SAP S/4HANA Cloud.
SAP’s clientele continues to expand with the addition of Allianz Technology, Cognizant, DB Schenker, Domino’s Pizza Enterprises, Siemens Energy, Trent Limited and Vali, among others, which adopted SAP’s various solutions during the reported quarter.
In July 2022, SAP announced the acquisition of Askdata for an undisclosed amount to tap the growing demand for data and analytics solutions. Askdata is a startup specializing in search-driven analytics that uses machine learning algorithms to provide a personalized experience to users. Natural language processing is combined with artificial intelligence technologies, enabling users to quickly find the answer to any data-related question.
In August 2022, SAP announced the divestiture of SAP Litmos to a global investment firm, Francisco Partners for an undisclosed amount. The acquisition is anticipated to be completed in the fourth quarter of 2022, pending customary regulatory approvals.
Margin Details
Non-IFRS gross margin of 73.3% contracted 30 basis points (bps) from the year-ago quarter’s figure.
SAP reported non-IFRS operating expenses of €5.7 billion, up 21% from the year-ago quarter’s level (up 11% at cc).
Non-IFRS operating profit of €2.094 billion was flat on a year-over-year basis (down 8% at cc) owing to lower software licenses and support revenues and higher research & development and sales & marketing expenses.
Non-IFRS operating margin of 26.7% contracted 400 bps on a year-over-year basis. At cc, the figure came in at 26.9% and contracted 380 bps. Balance Sheet & Cash Flow
As of Sep 30, SAP had cash and cash equivalents of €7.34 billion compared with €7.492 billion as of Jun 30.
The company generated €849 million of operating cash in the reported quarter compared with €268 billion in the prior quarter.
The free cash flow was €464 billion compared with the previous quarter’s free cash outflow of €86 billion.
In July, SAP had announced its second share repurchase authorization for 2022, which was concluded in September. Under the program, the company bought back 5,715,512 shares at an average price of €87.50, totaling €500 million. These will mainly be used to service awards granted under share-based compensation plans for employees, noted SAP.
2022 Outlook Reiterated
For 2022, SAP anticipates cloud revenues in the range of €11.55-€11.85 billion, suggesting an increase of 23-26% at cc. For the full year, the company expects a negative impact of approximately €250 million at constant currencies due to a lack of new business and discontinuation of existing business. For non-IFRS operating profit, the impact is expected to be around €300 million at constant currencies.
Cloud and software revenues are now expected to be between €25 billion and €25.5 billion, implying a 4-6% rise at cc.
The company continues to expect non-IFRS operating profit in the range of €7.6-€7.9 billion, indicating a decline of 4-8% at cc. Free cash flow is expected to be nearly €4.5 billion as against the earlier projection of above €4.5 billion.
The suspension of Russian operations amid the ongoing Ukraine war is expected to affect overall performance.
The Zacks Consensus Estimate for Pure Storage’s 2022 earnings is pegged at $1.18 per share, up 24.2% in the past 60 days. The long-term earnings growth rate is anticipated to be 35.5%.
Pure Storage’s earnings beat the Zacks Consensus Estimate in the last four quarters, the average being 171.8%. Shares of PSTG have gained 8.6% in the past year.
The Zacks Consensus Estimate for Blackbaud’s 2022 earnings is pegged at $2.55 per share, unchanged in the past 60 days. The long-term earnings growth rate is anticipated to be 3%.
Blackbaud’s earnings beat the Zacks Consensus Estimate in the last four quarters, the average being 8.5%. Shares of BLKB have lost 28.9% in the past year.
The Zacks Consensus Estimate for Aspen’s fiscal 2023 earnings is pegged at $6.77 per share. The long-term earnings growth rate is anticipated to be 18.5%.
AZPN’s earnings beat the Zacks Consensus Estimate in three of the last four quarters, the average being 6.2%. Shares of AZPN have gained 61.3% in the past year.
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SAP's Q3 Earnings Decline Y/Y, Revenues Up on Cloud Strength
SAP SE (SAP - Free Report) delivered third-quarter 2022 non-IFRS earnings of €1.12 per share ($1.13), down 36% from the year-ago quarter’s levels. The downside was caused by tougher year-over-year comparisons pertaining to the contribution from Sapphire Ventures.
Driven by strength in cloud business, SAP reported total revenues, on a non-IFRS basis, of €7.841 billion ($7.903 billion), up 15% year over year (up 5% at constant currency or cc). The company also reiterated its 2022 outlook.
Following the announcement, shares are up 5.4% in the pre-market trading on Oct 25.
SAP SE Price, Consensus and EPS Surprise
SAP SE price-consensus-eps-surprise-chart | SAP SE Quote
Cloud Results
Current cloud backlog — a key indicator of go-to-market success in cloud business — increased 38% (up 26% at cc) to €11.267 billion. The company’s suspension of Russian operations amid the ongoing Ukraine war reduced the current cloud backlog by nearly €64 million.
On a non-IFRS basis, the Cloud and software business (85.6% of total revenues) registered revenues of €6.71 billion, up 14% year over year (up 5% at cc).
Cloud revenues were €3.288 billion, up 38% year over year on a non-IFRS basis (up 25% at cc).
Software licenses and support revenues totaled €3.422 billion, down 3% (down 9% at cc) year over year. Non-IFRS software license revenues of €406 million declined 38% (down 42% at cc) year over year.
On a non-IFRS basis, cloud revenues — related to Software as a Service increased 26% at cc to €2.621 billion. Cloud revenues — related to the Platform as a Service — rose 44% at cc year over year to €415 million. Cloud revenues — related to Infrastructure as a Service — declined 3% at cc year over year to €252 million.
The Services business (14.4% of total revenues) delivered revenues of €1.131 billion, up 21% from the year-ago quarter’s levels (up 11% at cc).
The company has two reportable segments — Applications, Technology & Services (AT&S) and Qualtrics. At the beginning of 2022, the Services segment was merged into the old Applications, Technology & Support segment, which is now re-named as the Applications, Technology & Services segment.
AT&S’ revenues were up 12% year over year (up 4% at cc) to €7.16 billion. Qualtrics segment’s revenues rallied 65% (up 42% at cc) to €384 million.
Expanding Clientele Bodes Well
The Rise with SAP solution was adopted by clients, including Alpargatas, Dabur India Limited, Fonterra, Nikon Corporation, Prada, RICOH CO, Roborock, Salzburg AG, Schneider Electric, Wistron Corporation and 11teamsports.
More companies have begun deploying the S/4HANA solution partly or entirely in the cloud. SAP S/4HANA Cloud revenues increased 98% (up 81% at cc) year over year to €546 million. SAP S/4HANA’s current cloud backlog was up 108% (up 90% at cc) year over year. In the reported quarter, Dufry International, BioNTech, Birlasoft, Bosch BASF Smart Farming, Petrobras and Wipro went live on SAP S/4HANA Cloud.
SAP’s clientele continues to expand with the addition of Allianz Technology, Cognizant, DB Schenker, Domino’s Pizza Enterprises, Siemens Energy, Trent Limited and Vali, among others, which adopted SAP’s various solutions during the reported quarter.
In July 2022, SAP announced the acquisition of Askdata for an undisclosed amount to tap the growing demand for data and analytics solutions. Askdata is a startup specializing in search-driven analytics that uses machine learning algorithms to provide a personalized experience to users. Natural language processing is combined with artificial intelligence technologies, enabling users to quickly find the answer to any data-related question.
In August 2022, SAP announced the divestiture of SAP Litmos to a global investment firm, Francisco Partners for an undisclosed amount. The acquisition is anticipated to be completed in the fourth quarter of 2022, pending customary regulatory approvals.
Margin Details
Non-IFRS gross margin of 73.3% contracted 30 basis points (bps) from the year-ago quarter’s figure.
SAP reported non-IFRS operating expenses of €5.7 billion, up 21% from the year-ago quarter’s level (up 11% at cc).
Non-IFRS operating profit of €2.094 billion was flat on a year-over-year basis (down 8% at cc) owing to lower software licenses and support revenues and higher research & development and sales & marketing expenses.
Non-IFRS operating margin of 26.7% contracted 400 bps on a year-over-year basis. At cc, the figure came in at 26.9% and contracted 380 bps.
Balance Sheet & Cash Flow
As of Sep 30, SAP had cash and cash equivalents of €7.34 billion compared with €7.492 billion as of Jun 30.
The company generated €849 million of operating cash in the reported quarter compared with €268 billion in the prior quarter.
The free cash flow was €464 billion compared with the previous quarter’s free cash outflow of €86 billion.
In July, SAP had announced its second share repurchase authorization for 2022, which was concluded in September. Under the program, the company bought back 5,715,512 shares at an average price of €87.50, totaling €500 million. These will mainly be used to service awards granted under share-based compensation plans for employees, noted SAP.
2022 Outlook Reiterated
For 2022, SAP anticipates cloud revenues in the range of €11.55-€11.85 billion, suggesting an increase of 23-26% at cc. For the full year, the company expects a negative impact of approximately €250 million at constant currencies due to a lack of new business and discontinuation of existing business. For non-IFRS operating profit, the impact is expected to be around €300 million at constant currencies.
Cloud and software revenues are now expected to be between €25 billion and €25.5 billion, implying a 4-6% rise at cc.
The company continues to expect non-IFRS operating profit in the range of €7.6-€7.9 billion, indicating a decline of 4-8% at cc. Free cash flow is expected to be nearly €4.5 billion as against the earlier projection of above €4.5 billion.
The suspension of Russian operations amid the ongoing Ukraine war is expected to affect overall performance.
Zacks Rank & Other Stocks to Consider
SAP currently carries a Zacks Rank #2 (Buy).
Some other top-ranked stocks from the broader technology space are Pure Storage (PSTG - Free Report) , Blackbaud (BLKB - Free Report) and Aspen Technology (AZPN - Free Report) . Pure Storage and Blackbaud currently sport a Zacks Rank #1 (Strong Buy), while DecisionPoint carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Pure Storage’s 2022 earnings is pegged at $1.18 per share, up 24.2% in the past 60 days. The long-term earnings growth rate is anticipated to be 35.5%.
Pure Storage’s earnings beat the Zacks Consensus Estimate in the last four quarters, the average being 171.8%. Shares of PSTG have gained 8.6% in the past year.
The Zacks Consensus Estimate for Blackbaud’s 2022 earnings is pegged at $2.55 per share, unchanged in the past 60 days. The long-term earnings growth rate is anticipated to be 3%.
Blackbaud’s earnings beat the Zacks Consensus Estimate in the last four quarters, the average being 8.5%. Shares of BLKB have lost 28.9% in the past year.
The Zacks Consensus Estimate for Aspen’s fiscal 2023 earnings is pegged at $6.77 per share. The long-term earnings growth rate is anticipated to be 18.5%.
AZPN’s earnings beat the Zacks Consensus Estimate in three of the last four quarters, the average being 6.2%. Shares of AZPN have gained 61.3% in the past year.