By Christopher Alessi
FRANKFURT--Business software provider SAP SE lowered its
earnings outlook for this year on Monday despite reporting a 15%
increase in third-quarter net profit, boosted by growth in
subscriptions for its cloud-based software products.
The German company said it expects its full-year operating
profit to be in a range of EUR5.6 billion to EUR5.8 billion ($7.15
billion to $7.4 billion), compared with a previous forecast of
EUR5.8 billion to EUR6 billion. The company anticipates short-term
pressures on margins and less upfront revenue as it refocuses its
business on cloud-based software technology. SAP uses its own
accounting method for the guidance, which isn't in line with
international financial reporting standards.
The announcement sent SAP shares down around 4% in trading
Monday.
Investors "just need to digest the news," SAP Chief Executive
Bill McDermott told The Wall Street Journal. SAP's increasing focus
on Internet, cloud-based software products "means that slightly
less revenue upfront will impact operating income," Mr. McDermott
said.
Net profit for the period ended September 30 was EUR880 million,
compared with EUR762 million during the same period last year,
beating analyst expectations. Analysts had predicted a profit of
EUR808 million, according to a recent poll by the Journal.
Total revenue rose 5% to EUR4.25 billion from EUR4.05 billion a
year earlier, with cloud revenue jumping 45% to EUR277 million from
EUR197 million.
SAP raised its cloud revenue forecast for 2014, citing
accelerated adoption of its real-time HANA database platform. The
company, which said it has over 4,100 HANA customers, increased its
cloud outlook for 2014 to be in a range of EUR1.04 billion to
EUR1.07 billion, using non-IFRS reporting measures.
SAP has in recent years actively shifted its business focus away
from on-site software offerings to cloud products, which deliver
software online to business customers.
As SAP moves further into the cloud, its revenue will
increasingly be distributed over longer contract periods and be
based less on one-off licensing fees for on premise software,
contributing to the company's lowered guidance for 2014, SAP
executive board member Bernd Leukert told the Journal.
"In the long run, this is a more healthy business," Mr. Leukert
said.
Analysts appeared largely unconcerned by SAP's reduced guidance.
The company is on track with its "long-term promising cloud
business," analysts at DZ Bank concluded.
SAP agreed last month to buy for $8.3 billion U.S.-based Concur
Technologies Inc., which produces cloud-based travel and expense
management software. The acquisition will make SAP the
second-largest enterprise cloud-service company by revenue behind
cloud computing company Salesforce.com Inc. Despite paying a high
price, Concur could bring SAP cloud revenues of more than EUR2
billion next year, according to analysts at J.P. Morgan.
"SAP is hitting Salesforce right in its core," Mr. McDermott
said, dismissing Salesforce's recently announced plans to overtake
SAP in size by expanding into new product areas such as business
analytics and bolstering sales outside North America. Salesforce,
which took in $1.32 billion in revenue for its most recently
reported financial quarter ending July 31, declined to comment.
SAP's revised business outlook didn't include potential
contributions from the still-unfinished deal with Concur.
Other cloud-oriented acquisitions by SAP include human-resources
application SuccessFactors, e-commerce application Ariba and
workforce management software manufacturer Fieldglass.
But the centerpiece of SAP's cloud portfolio continues to be its
flagship HANA software, a high-speed database that allows customers
to store, access and analyze information without needing to rely on
disk-based storage devices. SAP's cloud strategy depends on its
ability to successfully harness HANA to offer core enterprise
software products such as Business Suite in the cloud, analysts
say.
SAP also faces competition in the cloud from its longtime rival
Oracle Corp. The U.S.-based software provider, which recently
announced plans to acquire field services cloud software provider
TOA Technologies, reported cloud revenue rose 37% to $337 million
in its most recent quarterly earnings report last month.
SAP's continued expansion into the cloud technology arena comes
on the heels of a management reshuffle last July, which resulted in
Mr. McDermott's promotion to sole CEO. He is the first American to
lead the company.
Write to Christopher Alessi at christopher.alessi@wsj.com
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