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SAP's Q4 Earnings Decline Y/Y, Revenues Up on Cloud Strength
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SAP SE (SAP - Free Report) delivered fourth-quarter 2022 non-IFRS earnings of €1 per share, down 46% 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 the cloud business, SAP reported total revenues, on a non-IFRS basis, of €8.436 billion, up 6% year over year (up 1% at constant currency or cc).
Following the announcement, shares are down 4.7% in the pre-market trading on Jan 26.
Current cloud backlog — a key indicator of go-to-market success in cloud business — increased 27% (up 24% at cc) to €12 billion. The company’s suspension of Russian operations amid the ongoing Ukraine war reduced the current cloud backlog by nearly €62 million.
On a non-IFRS basis, the Cloud and software business (86.4% of total revenues) registered revenues of €7.292 billion, up 4% year over year (remained unchanged at cc).
Cloud revenues were €3.392 billion, up 30% year over year on a non-IFRS basis (up 22% at cc). The company’s cloud business gained momentum across China, India, the Netherlands, Switzerland and the United States.
Software licenses and support revenues totaled €3.900 billion, down 11% (down 14% at cc) year over year. Non-IFRS software license revenues of €907 million declined 38% (down 39% at cc) year over year.
On a non-IFRS basis, cloud revenues related to Software as a Service increased 23% at cc to €2.137 billion. Cloud revenues — related to the Platform as a Service — rose 43% at cc year over year to €423 million. Cloud revenues — related to Infrastructure as a Service — declined 19% at cc year over year to €205 million.
The Services business (13.6% of total revenues) delivered revenues of €1.144 billion, up 15% from the year-ago quarter’s levels (up 10% 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 4% year over year (down 1% at cc) to €7.74 billion. Qualtrics segment’s revenues rallied 37% (up 22% at cc) to €389 million.
The company is mulling to sell its stake in Qualtrics, which aligns with its strategy to streamline its portfolio and focus on its core cloud growth and profitability.
Expanding Clientele Bodes Well
The Rise with SAP solution was adopted by clients, including Al-Futtaim Group, City of Vancouver, ExxonMobil, Fujitsu Limited, German Football Association (DFB), Imperial Brands, Kanton Aargau, Lockheed Martin, Merck KGaA, Munich Leukemia Laboratory (MLL), Lenovo, Lumen Technologies, Natuzzi, PETRONAS, Port of Rotterdam, Renault Group, Swarovski, Warsteiner Brauerei, and ZF Friedrichshafen AG.
More companies have begun deploying the S/4HANA solution partly or entirely in the cloud. SAP S/4HANA Cloud revenues increased 101% (up 90% at cc) year over year to €660 million. SAP S/4HANA’s current cloud backlog was up 86% (up 82% at cc) year over year.
In the reported quarter, Accenture, Canon Production Printing, Daimler Truck AG, Ducati Motor Holding, Mahindra Group, Walgreens Boots Alliance and Zespri went live on SAP S/4HANA Cloud.
SAP’s clientele continues to expand with the addition of ArcelorMittal Europe, C6 Bank, Caixabank Tech, Euronews, Groupe SEB, Groupe TF1, Fressnapf, Haier, Hisense, Macquarie Banking and Financial Services, NBA, DOUGLAS, Qualcomm etc., which adopted SAP’s various solutions during the reported quarter.
On Dec 1, 2022, SAP announced that it had completed the sale of Litmos Solutions’ business to Francisco Partners. Post the acquisition, SAP customers will have continued access to Litmos solutions via the SAP Store site.
On Nov 15, 2022, SAP announced the launch of SAP Build at the company’s TechEd conference. SAP Build is a low-code solution that leverages the company’s Business Technology Platform to assist customers in easily creating and developing enterprise applications, automating processes and constructing and enhancing business sites without the extensive need for technical expertise.
Margin Details
Non-IFRS gross margin of 74.1% decreased 100 basis points (bps) from the year-ago quarter’s figure.
SAP reported non-IFRS operating expenses of €5.85 billion, up 6% from the year-ago quarter’s level (up 1% at cc).
Non-IFRS operating profit of €2.581 billion increased 5% on a year-over-year basis (up 2% at cc) owing to disciplined spend management.
Non-IFRS operating margin of 30.6% contracted 30 bps on a year-over-year basis. At cc, the figure came in at 31.2% and increased 30 bps.
Balance Sheet & Cash Flow
As of Dec 31, 2022 SAP had cash and cash equivalents of €9.006 billion compared with €7.316 billion as of Sep 30.
The company generated €2.048 billion operating cash in the reported quarter compared with €0.849 billion in the prior quarter.
The free cash flow was €1.805 billion compared with the previous quarter’s figure of €0.464 billion.
2023 Outlook
For 2023, SAP anticipates cloud revenues in the range of €15.3-€15.7 billion, suggesting an increase of 22-25% at cc.
Cloud and software revenues are now expected to be between €28.2 billion and €28.7 billion, implying a 6-8% rise at cc.
The company continues to expect non-IFRS operating profit in the range of €8.8-€9.1 billion, indicating a rise of 10-13% at cc. Free cash flow is expected to be nearly €5 billion.
The company plans to conduct a targeted restructuring program in certain areas of the company. The goal of this program is to better align its operating models and go-to-market approach with its accelerated cloud transformation, as well as to strengthen its core business and improve overall process efficiency.
The program will impact around 2.5% of SAP's employees, with costs of €250 million to €300 million expected to be recognized in the first quarter of 2023. The program is expected to provide moderate cost benefits in 2023. As of 2024, the restructuring is expected to generate €300-€350 million in annual cost savings, which will be directed towards investments in strategic growth areas.
The Zacks Consensus Estimate for Arista Networks 2022 earnings is pegged at $4.38 per share, rising 0.2 in the past 60 days. The long-term earnings growth rate is anticipated to be 17.5%.
Arista Networks’ earnings beat the Zacks Consensus Estimate in the last four quarters, the average being 12.7%. Shares of ANET have increased 3.3% in the past year.
The Zacks Consensus Estimate for Jabil’s 2023 earnings is pegged at $8.37 per share, rising 2.3% in the past 60 days. The long-term earnings growth rate is anticipated to be 12%.
Jabil’s earnings beat the Zacks Consensus Estimate in all the last four quarters, the average being 8.8%. Shares of JBL have increased 35.9% in the past year.
The Zacks Consensus Estimate for Calix’s 2022 earnings is pegged at $1.06 per share, unchanged in the past 60 days.
Calix’s earnings beat the Zacks Consensus Estimate in all the last four quarters, the average being 19%. Shares of CALX have soared 41.2% in the past year.
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SAP's Q4 Earnings Decline Y/Y, Revenues Up on Cloud Strength
SAP SE (SAP - Free Report) delivered fourth-quarter 2022 non-IFRS earnings of €1 per share, down 46% 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 the cloud business, SAP reported total revenues, on a non-IFRS basis, of €8.436 billion, up 6% year over year (up 1% at constant currency or cc).
Following the announcement, shares are down 4.7% in the pre-market trading on Jan 26.
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 27% (up 24% at cc) to €12 billion. The company’s suspension of Russian operations amid the ongoing Ukraine war reduced the current cloud backlog by nearly €62 million.
On a non-IFRS basis, the Cloud and software business (86.4% of total revenues) registered revenues of €7.292 billion, up 4% year over year (remained unchanged at cc).
Cloud revenues were €3.392 billion, up 30% year over year on a non-IFRS basis (up 22% at cc). The company’s cloud business gained momentum across China, India, the Netherlands, Switzerland and the United States.
Software licenses and support revenues totaled €3.900 billion, down 11% (down 14% at cc) year over year. Non-IFRS software license revenues of €907 million declined 38% (down 39% at cc) year over year.
On a non-IFRS basis, cloud revenues related to Software as a Service increased 23% at cc to €2.137 billion. Cloud revenues — related to the Platform as a Service — rose 43% at cc year over year to €423 million. Cloud revenues — related to Infrastructure as a Service — declined 19% at cc year over year to €205 million.
The Services business (13.6% of total revenues) delivered revenues of €1.144 billion, up 15% from the year-ago quarter’s levels (up 10% 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 4% year over year (down 1% at cc) to €7.74 billion. Qualtrics segment’s revenues rallied 37% (up 22% at cc) to €389 million.
The company is mulling to sell its stake in Qualtrics, which aligns with its strategy to streamline its portfolio and focus on its core cloud growth and profitability.
Expanding Clientele Bodes Well
The Rise with SAP solution was adopted by clients, including Al-Futtaim Group, City of Vancouver, ExxonMobil, Fujitsu Limited, German Football Association (DFB), Imperial Brands, Kanton Aargau, Lockheed Martin, Merck KGaA, Munich Leukemia Laboratory (MLL), Lenovo, Lumen Technologies, Natuzzi, PETRONAS, Port of Rotterdam, Renault Group, Swarovski, Warsteiner Brauerei, and ZF Friedrichshafen AG.
More companies have begun deploying the S/4HANA solution partly or entirely in the cloud. SAP S/4HANA Cloud revenues increased 101% (up 90% at cc) year over year to €660 million. SAP S/4HANA’s current cloud backlog was up 86% (up 82% at cc) year over year.
In the reported quarter, Accenture, Canon Production Printing, Daimler Truck AG, Ducati Motor Holding, Mahindra Group, Walgreens Boots Alliance and Zespri went live on SAP S/4HANA Cloud.
SAP’s clientele continues to expand with the addition of ArcelorMittal Europe, C6 Bank, Caixabank Tech, Euronews, Groupe SEB, Groupe TF1, Fressnapf, Haier, Hisense, Macquarie Banking and Financial Services, NBA, DOUGLAS, Qualcomm etc., which adopted SAP’s various solutions during the reported quarter.
On Dec 1, 2022, SAP announced that it had completed the sale of Litmos Solutions’ business to Francisco Partners. Post the acquisition, SAP customers will have continued access to Litmos solutions via the SAP Store site.
On Nov 15, 2022, SAP announced the launch of SAP Build at the company’s TechEd conference. SAP Build is a low-code solution that leverages the company’s Business Technology Platform to assist customers in easily creating and developing enterprise applications, automating processes and constructing and enhancing business sites without the extensive need for technical expertise.
Margin Details
Non-IFRS gross margin of 74.1% decreased 100 basis points (bps) from the year-ago quarter’s figure.
SAP reported non-IFRS operating expenses of €5.85 billion, up 6% from the year-ago quarter’s level (up 1% at cc).
Non-IFRS operating profit of €2.581 billion increased 5% on a year-over-year basis (up 2% at cc) owing to disciplined spend management.
Non-IFRS operating margin of 30.6% contracted 30 bps on a year-over-year basis. At cc, the figure came in at 31.2% and increased 30 bps.
Balance Sheet & Cash Flow
As of Dec 31, 2022 SAP had cash and cash equivalents of €9.006 billion compared with €7.316 billion as of Sep 30.
The company generated €2.048 billion operating cash in the reported quarter compared with €0.849 billion in the prior quarter.
The free cash flow was €1.805 billion compared with the previous quarter’s figure of €0.464 billion.
2023 Outlook
For 2023, SAP anticipates cloud revenues in the range of €15.3-€15.7 billion, suggesting an increase of 22-25% at cc.
Cloud and software revenues are now expected to be between €28.2 billion and €28.7 billion, implying a 6-8% rise at cc.
The company continues to expect non-IFRS operating profit in the range of €8.8-€9.1 billion, indicating a rise of 10-13% at cc. Free cash flow is expected to be nearly €5 billion.
The company plans to conduct a targeted restructuring program in certain areas of the company. The goal of this program is to better align its operating models and go-to-market approach with its accelerated cloud transformation, as well as to strengthen its core business and improve overall process efficiency.
The program will impact around 2.5% of SAP's employees, with costs of €250 million to €300 million expected to be recognized in the first quarter of 2023. The program is expected to provide moderate cost benefits in 2023. As of 2024, the restructuring is expected to generate €300-€350 million in annual cost savings, which will be directed towards investments in strategic growth areas.
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 Arista Networks (ANET - Free Report) , Jabil (JBL - Free Report) and Calix (CALX - Free Report) . Jabil and Calix currently sport a Zacks Rank #1 (Strong Buy), whereas Arista Networks holds a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks.
The Zacks Consensus Estimate for Arista Networks 2022 earnings is pegged at $4.38 per share, rising 0.2 in the past 60 days. The long-term earnings growth rate is anticipated to be 17.5%.
Arista Networks’ earnings beat the Zacks Consensus Estimate in the last four quarters, the average being 12.7%. Shares of ANET have increased 3.3% in the past year.
The Zacks Consensus Estimate for Jabil’s 2023 earnings is pegged at $8.37 per share, rising 2.3% in the past 60 days. The long-term earnings growth rate is anticipated to be 12%.
Jabil’s earnings beat the Zacks Consensus Estimate in all the last four quarters, the average being 8.8%. Shares of JBL have increased 35.9% in the past year.
The Zacks Consensus Estimate for Calix’s 2022 earnings is pegged at $1.06 per share, unchanged in the past 60 days.
Calix’s earnings beat the Zacks Consensus Estimate in all the last four quarters, the average being 19%. Shares of CALX have soared 41.2% in the past year.