SAP Lifts Outlook as Expanding Cloud Use Boosts Profit -- Update
January 24 2017 - 4:24AM
Dow Jones News
By Sarah Sloat and Christopher Alessi
FRANKFURT--Business software provider SAP SE raised its earnings
outlook Tuesday after the expanding takeup of its cloud-based
business lifted fourth-quarter results, the latest sign that Chief
Executive Bill McDermott's push to focus the company on its
internet offering is paying off.
Net profit for the three months ended Dec. 31 rose 18% to
EUR1.51 billion ($1.62 billion) from EUR1.28 billion a year
earlier. Revenue rose 6% to EUR6.72 billion.
Fourth-quarter net profit under non-international financial
reporting standards was EUR1.82 billion, beating analysts'
forecasts of EUR1.67 billion in a poll by The Wall Street
Journal.
New cloud bookings were up 40% in the fourth quarter while cloud
subscriptions and support revenue grew 31%. The cloud backlog of
unbooked but committed orders, which signals the company's future
revenue performance, was healthy, Mr. McDermott said.
"We come into 2017 with enormous momentum," the CEO said.
SAPs transition to the cloud had initially squeezed
profitability because cloud revenue is spread out over longer
contract periods, rather than being based on lucrative one-off
licensing fees. On Tuesday SAP confirmed it still expected cloud
subscriptions and support revenue to overtake its software license
revenue by 2018.
The company slightly raised the lower end of its non-IFRS
operating profit forecast range. It now expects EUR6.8 billion-EUR7
billion this year and EUR8.5 billion-EUR9 billion in 2020.
UBS analysts said the revised guidance had been expected, based
in part on the bank's survey of IT spending plans that showed good
demand trends for SAP and software spending growth of 2.5% this
year.
Still, SAP shares were down 0.6% early Tuesday. "The market got
too bullish on potential upgrades," UBS said.
Mr. McDermott said recent world events such as the U.K. vote to
leave the European Union and U.S. elections helped rather than
harmed SAP's business.
"Geopolitical issues play right to our strength," he said.
"Brexit and other macro geopolitical shifts--all of them help SAP
because whoever is looking at this equation...is going to need
digital transformation."
Company executives said Tuesday that the U.K. was one of the
fastest-growing markets for SAP following the Brexit vote, and that
Mexico was strong in the fourth quarter, "with all the U.S.
election turmoil."
In recent years as part of SAP's move into the cloud, Mr.
McDermott, an American, has presided over a series of acquisitions
of cloud-focused enterprises, including the 2014 purchase of
U.S.-based travel and expense management software provider Concur
Technologies for $8.3 billion.
Shortly afterward SAP presented a redesign of its core Business
Suite software--including management applications for finance,
logistics, commerce and inventory management--to operate on its
HANA real-time database, either on hardware, in the cloud or as
part of a hybrid solution.
Write to Sarah Sloat at sarah.sloat@wsj.com and Christopher
Alessi at christopher.alessi@wsj.com
(END) Dow Jones Newswires
January 24, 2017 04:09 ET (09:09 GMT)
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