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SAP SE (SAP) Q4 Earnings Beat Estimates, Revenues Rise Y/Y

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SAP SE (SAP - Free Report) reported fourth-quarter 2019 non-IFRS earnings of €1.82 per share, which improved 21% from the year-ago figure.

Moreover, earnings of $2.02 per share beat the Zacks Consensus Estimate by 4.7%.

On IFRS basis, the company reported earnings of €1.37 per share, down 3% year over year.

Total revenues, on a non-IFRS basis, came in at €8.051 billion ($8.91 billion), up 8% year over year (up 6% at constant currency) and beat the Zacks Consensus Estimate by 1.7%.

On IFRS basis, revenues were €8.04 billion, up 8% year over year.

New cloud bookings advanced 19% (17% at cc) year over year to €878 million.

SAP SE Price, Consensus and EPS Surprise

Impressive Cloud Results

On a non-IFRS basis, Cloud and software business (85.2% of total revenues) reported revenues of €6.858 billion, up 8% year over year (up 6% at cc).

Cloud revenues came in at €1.908 billion, up 37% year over year on a non-IFRS basis (33% at cc). Software licenses & support reported revenues of €4.95 billion, up 1%.

Cloud revenues — related to Software as a Service (SaaS)/Platform as a Service (PaaS) — surged 31% at cc to €1.674 billion. Cloud revenues — Infrastructure as a Service (IaaS) related — rallied 35% year over year at cc to €188 million.

SAP provides collaborative commerce capabilities (Ariba), flexible workforce management (Fieldglass) and effortless travel and expense processing (Concur) under its Intelligent Spend Group (formerly named Business Network). Approximately $3.6 trillion in global commerce is transacted annually through this platform across more than 180 countries.

Segment wise, Applications, Technology & Services (AT&S) revenues increased 5% (3% at cc) to €6.97 billion. Intelligent Spend Group revenues jumped 15% (12% at cc) to €830 million. Moreover, Qualtrics segment revenues were €156 million.

Expanding Clientele Favors Business Prospects

S/4HANA adoption grew 24% year over year to around 13,800 customers. In the reported quarter, net new customers comprised approximately 40% of total customers.

S/4HANA clientele continues to expand with the addition of Ford Motor Group, Decathlon, and Lockheed Martin, among others. Notably, Vodafone, Deutsche Telekom, ARAMEX, and Mercedes Benz Formula E have gone live with S/4HANA solution in part or entirely in the cloud.

Moreover, SAP’s C/4HANA customer experience solution was selected by The Nielsen Company, Royal Dutch Shell, and Chevronin, among others, in the reported quarter.

SAP’s Human Experience management (HXM) solution — SAP SuccessFactors — ended the reported quarter with more than 450 customers. Notable deal wins in the quarter comprised Landesbank Baden-Württemberg, Genting Hong Kong, and Universal Beijing Resort, while Eurobank, Computacenter and Chalhoub Group went live on the platform.

SAP’s business technology platform bundles SAP HANA, SAP Data Warehouse Cloud, SAP Cloud Platform, SAP Analytics Cloud, SAP Intelligent Robotic Process Automation and SAP Data Intelligence solutions. In the reported quarter, notable deal wins include Barclaycard, Telecom Italia, GetYourGuide and Allegiant Travel Company.

Additionally, Kärcher, Electrolux, Coca-Cola Hellenic Bottling Company, GEA Group, Repsol, and New York Yankees opted for the company’s Intelligent Spend Group solutions in the quarteri n the quarter.

Further, Qualtrics solutions were selected by Volkswagen Group Australia, JPMorgan Chase, Allianz SE, Alaska Airlines, ExxonMobil, Santander, Samsung Group and the Hearst Corporation, among others, in the reported quarter.

EMEA Witnesses Robust Cloud Growth

Europe, Middle East & Africa (EMEA) Cloud revenues surged 48% at cc. Cloud & software revenues increased 7% at cc. The top line was driven by strong cloud revenues in the U.K., Germany and Netherlands. Moreover, SAP witnessed robust software license revenue growth in the Spain and Switzerland.

Asia Pacific & Japan (APJ) Cloud revenues jumped approximately 33% at cc. Cloud & software revenues increased around 3% at cc. The top line benefited from strong cloud and software license revenue growth in China and Japan.

Americas’ Cloud revenues increased 24% at cc. Cloud & software revenues increased 7% at cc. Brazil and Canada delivered strong performance in cloud revenues in the fourth quarter. Further, solid adoption of software license solutions across Brazil, Canada and the United States aided growth.

Margin Details

Non-IFRS gross margin of 75.3% expanded 300 basis points from the year-ago figure.

SAP reported non-IFRS operating expense of €5.209 billion, up 7% from the year-ago quarter (up 5% at cc).

Non-IFRS operating profit of €2.843 billion grew 12% on a year-over-year basis (up 9% at cc).

Non-IFRS operating margin of 35.3% expanded 110 bps year over year (expanded 100 bps at cc).

Segment wise, AT&S profit increased 8% (6% at cc) to approximately €3.288 billion on a non-IFRS basis. Intelligent Spend Group profit advanced 17% (13% at cc) to €172 million. Qualtrics segment reported a loss of €10 million.

Balance Sheet & Cash Flow

The company ended the fourth quarter with cash and cash equivalents of approximately €5.314 billion compared with the previous quarter’s figure of €5.525 billion.

The company generated €180 million of operating cash in the reported quarter compared with €638 million utilized in the third quarter.

Free cash outflow came in at €50 million compared with previous quarter cash flow of €370 million.

Guidance for 2020

For 2020, SAP projects non-IFRS cloud revenues in the range of €8.7-€9.0 billion. Non-IFRS total revenues are expected to come in the range of €29.2 billion to €29.7 billion.

Notably, the company envisions non-IFRS operating profit in the band of €8.9 billion to €9.3 billion.

2023 Outlook

SAP provided outlook for 2023 as well. The company continues to expect non-IFRS total revenues to grow significantly and exceed €35 billion.

SAP anticipates non-IFRS cloud subscription and support revenues to more than triple over 2018-2023. Moreover, the company projects non-IFRS cloud gross margin to hit 75%.

Zacks Rank & Stocks to Consider

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

Some better-ranked stocks in the broader technology sector are Advanced Energy Industries AEIS, Perion Network Ltd PERI and CEVA, Inc. CEVA each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank  stocks here.

Advanced Energy Industries, Perion and CEVA are set to report quarterly results on Feb 3, 12 and 18, respectively.

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