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SAP Q2 Earnings Up Y/Y, Cloud Strength Drives Top-Line Growth

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SAP SE (SAP - Free Report) reported second-quarter 2018 non-IFRS earnings of €0.98 ($1.17) per share, up 4.3% on a year-over-year basis. However, the bottom line fell short of the Zacks Consensus Estimate of $1.18 per share.

On IFRS basis, earnings of €0.60 (71 cents) per share increased 7.1% on a year-over-year basis.

Total revenues, on non-IFRS basis, were €6.01 billion ($7.15 billion), up 4% year over year (up 10% at constant currency), better than the Zacks Consensus Estimate of $7.11 billion.

On IFRS basis, revenues were €5.99 billion ($7.13 billion), up 3.8% year over year.

New cloud bookings — a key indicator of sales success in cloud business — were up an impressive 29% (at constant currency or cc) to €421 million.
 

SAP SE Price, Consensus and EPS Surprise

SAP SE Price, Consensus and EPS Surprise | SAP SE Quote

 

Cloud Results Impressive

Cloud and software business (82.4% of total revenues), which includes Cloud subscriptions & support and Software licenses & support, reported revenues of €5.25 billion, up 4% year over year (up 10% at cc).

Cloud subscriptions & support revenues of €1.30 billion surged 40% on a year-over-year basis at cc (non-IFRS). Software licenses & support reported revenues of €3.95 billion, up 3% at cc, on a year-over-year basis (non-IFRS).

Cloud subscriptions and support revenues — related to Software as a Service (SaaS)/Platform as a Service (PaaS) — surged 39% at cc to €1.30 billion. Cloud subscriptions and support revenues — Infrastructure as a Service (IaaS) related — jumped 49% year over year to €120 million.

Services (17.6% of total revenues) increased 3% from the year-ago quarter (up 10% at cc) to €1.13 billion.

Segment wise, Applications, Technology & Services revenues increased 8% at cc to €5.34 billion. Business Network revenues jumped 21% at cc to €688 million. Moreover, Customer Experience revenues surged 65% at cc to €242 million.

SAP provides collaborative commerce capabilities (Ariba), flexible workforce management (Fieldglass), and effortless travel and expense processing (Concur) under its Business Network commerce platform. Approximately $2.4 trillion in global commerce is annually transacted in more than 180 countries through this platform.

SAP Benefiting From Expanding Customer Base

S/4HANA adoption grew 41% year over year to more than 8,900 customers. In the reported quarter, almost 600 additional customers signed up, of which approximately 40% were net new customers.

S/4HANA clientele continues to expand with the addition of McDonalds (China), TechnipFMC, China Sports Lemon and Spirit Airlines.

Moreover, SAP’s C/4HANA customer experience solutions achieved high double-digit year-over-year growth in new cloud bookings and total revenues. Deutsche Telekom and Coty selected the solution in the reported quarter.

SAP’s Human Capital management (HCM) flagship solution — SuccessFactors Employee Central — ended the quarter with more than 2,600 customers. BMW, Telecom Argentina and MG Motors India were the customers that selected the solution in the quarter.

Porsche chose SAP’s Leonardo solution in the quarter. Leonardo integrates Internet of Things (IoT), Big Data, Machine Learning, Analytics and Blockchain capabilities on the SAP Cloud platform.

Asia-Pacific & Japan (APJ) Witnessed Strong Growth

APJ Cloud subscriptions & support revenues jumped more than 52% at constant currency. Cloud & software revenues increased more than 11% at constant currency. Top-line growth benefited from strong cloud revenue growth in China and Japan. Management stated that Australia, China and India software revenues grew at double-digit rate.

Europe, Middle East & Africa (EMEA) Cloud subscriptions & support revenues advanced more than 46% at constant currency. Cloud & software revenues increased more than 12% at constant currency. Top-line growth was driven by strong cloud revenues in Germany and the United Kingdom.

In the EMEA, software revenues grew at double-digit rate in the United Kingdom. Middle East and Germany reported solid single digit software revenue growth.

Americas’ Cloud subscriptions & support revenues soared more than 35% at constant currency. Cloud & software revenues increased more than 8% at constant currency. Brazil reported strong performance in cloud revenues in the quarter.

Operating Margin Expands

SAP reported non-IFRS operating expense of €4.37 billion, up 4% from the year-ago quarter (up 10% at cc).

Non-IFRS research & development (R&D) and general & administration (G&A) expenses as percentage of revenues increased 20 basis points (bps) and 10 bps, respectively, at cc. However, selling & marketing (S&M) declined 70 bps at cc.

Non-IFRS operating profit of €1.64 billion grew 4% on a year-over-year basis (up 12% at cc). Operating margin expanded 40 bps at cc to 27.6%.

Segment wise, Applications, Technology & Services profit increased 10% at cc to €2.23 billion. Business Network profit jumped 43% at cc to €139 million. Moreover, Customer Experience profit surged 80% at cc to €18 million.

Guidance Raised

For 2018, SAP expects non-IFRS total revenues to come in the range of €24.975-€25.3 billion at constant currency (cc), up from the previous range of €24.8-€25.3 billion. This represents growth of 6-7.5% year over year.

Non-IFRS cloud subscriptions and support revenues are now expected to be in the range of €5.050-€5.200 billion, up 34-38.0% at cc. Non-IFRS cloud and software revenues are now expected between €21.025 million and €21.250 billion, up 7.5-8.5% at cc.

Additionally, non-IFRS operating profit for 2018 is estimated to be in the band of €7.40-€7.50 billion, up from €7.35-€7.5 billion, reflecting year-over-year growth of 9-11%. Callidus is expected to provide €10 million.

Zacks Rank & Stocks to Consider

Currently, SAP carries a Zacks Rank #3 (Hold).

Adobe Systems (ADBE - Free Report) , Verint Systems (VRNT - Free Report) and Monotype Imaging are stocks worth considering in the same sector. All the three stocks sport 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 Adobe, Verint and Montoype is currently pegged at 16.2%, 10% and 15%, respectively.

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