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SAP Revenue Climbs On Online Software As Profit Margins Shrink

Published on Jul 21 2015 8:46 AM in Technology tagged: Software / SAP

SAP Revenue Climbs On Online Software As Profit Margins Shrink

SAP SE reported rising revenue as businesses snapped up new versions of its software delivered online, a trend that’s also weighing on its profit margins.

Sales rose 20 per cent to €4.97 billion ($5.4 billion), boosted by the euro’s drop, Walldorf, Germany-based SAP said in a statement. That topped the €4.91-billion average estimate of analysts surveyed by Bloomberg. The operating-profit margin shrank to 28 per cent, missing the 28.5 per cent predicted by analysts.

SAP’s customers are shifting to software delivered online, weighing on sales of its older and more lucrative programs that run on customers’ server computers and networks. Chief executive officer Bill McDermott is counting on a new version of the company’s flagship accounting and supply-chain software called S/4 Hana to increase sales, while also reducing jobs to keep costs in check.

“Licences were a bit weak, but the cloud-subscription momentum looks to have been strong,” said Michael Briest, an analyst at UBS in London who recommends buying the shares. The lower margin “seems understandable” in the context of slowing licence sales, he said.

Shares of SAP fell 1.5 per cent to €67.74 at 9.10 a.m. in Frankfurt. The stock had added 18 per cent this year, compared with a 20-per-cent increase in Germany’s DAX index of 30 companies.

Operating profit excluding some items rose 13 per cent to €1.39 billion. Analysts predicted €1.4 billion.

Cloud Push

SAP and rivals Oracle Corp. and Microsoft Corp. are adding cloud-computing capabilities in part to counter objections that their software is too expensive in an era when business managers are eschewing elaborate systems that can take years to yield results.

SAP now says that 900 customers are running the new S/4 Hana programs, a much-needed upgrade to its mainstay products for running businesses’ operations. The company introduced the product in February to refresh its market-leading Business Suite by letting customers pull data from online maps, social media and other sources to help accelerate decision-making, and it’s offering incentives for customers who make the shift now.

Sales of cloud-computing subscriptions more than doubled to €552 million, while new sales of traditional software licences rose 2 per cent to €979 million. Excluding the benefit from the euro’s decline, they would have fallen 7 per cent.

– News by Bloomberg, edited by ESM

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