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SAP Misses Estimates in 3Q

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SAPAKTIENGESELLSCHAFT (SAP - Free Report) reported total revenue of €3.97 billion ($4.95 billion) in the third quarter of 2012, up 16.4% year over year on constant currency. Earnings per share for the quarter were €0.70 (65 cents), down 2.3% year over year on constant currency, and 6.7% below the Zacks Consensus Estimate.

Operating profit, representing 31.2% of revenue, dropped 4% year over year to €1.2 billion in the quarter.

Revenue by Segment

Software Revenue (25.8% of 3Q12 revenue):  This segment includes Software and Maintenance revenue.  The segment revenue in the quarter was €1.0 billion, up 12% year over year.

Supportrevenue (53.0% of 3Q12 revenue): The segment reported revenue of €2.1 billion, up 10.0% year over year (on constant currency basis).

Cloud subscriptions and support revenue (2.0% of 3Q12 revenue):  Revenue in the specified segment stood at €80.0million during the reported quarter. Strong revenue in the quarter demonstrated continuous retention and adoption of enterprise support within SAP’s customer base and new customers, respectively. Further, the acquisition of SuccessFactor and Ariba helped drive top-line growth. 

Software and software-related service revenue (80.9% of 3Q12 revenue):  This sub-segment includes Support, Subscription, and other software-related services revenue. Total revenue in the third quarter was €3.2 billion, up 13% year over year on constant currency basis. 

Revenue by Region

During the third quarter of 2012, revenue from the EMEA grew 3.2% year over year to €1.7 billion. EMEA software revenue grew 22% and the emerging markets such as Middle East and Africa performed well.  

The Americas surged 28.8% year over year during the reported quarter, driven by a 37% growth in software. In addition, Latin America also reported strong growth on the back of robust performances in Brazil and Mexico.

APJ expanded 26.1%, driven by an 18% improvement in software, attributable to growth in two of the largest economies in the region, namely, Japan and China. Software in China grew 40% and is the sixth largest market for SAP.  

Reporting Segment Reclassification

Driven by SAP’s increased focus on the cloud business, the company now formed two new divisions: On Premise and Cloud. ON Premise (reported a revenue growth of 14% in the third quarter to €3.8 billion). This division has two sub segments ON Premise Products (revenue of €3.2 billion) and ON Premise Services (revenue of €736 million).

Cloud segment reported revenue of €101 million in the third quarter.   

Cash and Balance Sheet

Year to date, operating cash flow was €3.1 billion, up 3.1% year over year, primarily driven by better working capital management. Cash and cash equivalents was down 20% year over year while bank loan increased €900 million, primarily driven by the Ariba acquisition.  


Concurrent with the earnings release, management provided guidance for the fourth quarter and full fiscal 2012.

The current guidance includes Ariba's expected revenue and profit contribution from the acquisition (October 1, 2012) until December 31, 2012.

Including Ariba, SAP now expects full-year 2012 non-IFRS software and software-related service revenue to increase in a range of 10.5% to 12.5% at constant currencies. This guidance includes a combined contribution of approximately 2.5% from SuccessFactors and Ariba.

Full-year 2012 non-IFRS operating profit is expected to be in the range of €5.05 billion to €5.25 billion at constant currencies.

SAP primarily competes with giants such as Oracle Corporation (ORCL - Free Report) and Microsoft Corporation (MSFT - Free Report) . Oracle missed the Zacks Consensus Estimate by 2 cents and revenue also fell 2.3% during the first quarter of fiscal 2013.

Microsoft also missed the Zacks Consensus Estimate by 4 cents during its latest reported quarter (first quarter 2013). SAP currently has a Zacks Consensus Estimate of Zacks #2 Rank, which implies a short-term Buy rating on the stock.

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