SAP lifts outlook as cloud push gains traction in Q2

FAN Editor
SAP logo at SAP headquarters in Walldorf
FILE PHOTO: SAP logo at SAP headquarters in Walldorf, Germany, January 24, 2017. REUTERS/Ralph Orlowski

July 21, 2021

By Douglas Busvine

BERLIN (Reuters) -German business software group SAP raised its outlook for the second time this year on Wednesday as a strategic push to help customers shift their IT operations to the cloud gained traction in the second quarter.

Shares in the top provider of software to run finance, human resources and supply-chains rose by up to 2.8% as SAP captured demand from firms seeking to adapt to trends such as remote working that accelerated since the COVID-19 pandemic.

“Results indicate SAP’s cloud transition continues to succeed,” said Jefferies analyst Julian Serafini, highlighting strength in SAP’s subscription-based services and the cloud version of its S/4HANA database.

SAP now expects cloud revenue to grow by 15%-18% in the year, helping its overall cloud and software revenue to gain by 2%-3%. Operating profit is now expected to be unchanged to down 4% for 2021 as a whole.

“We’re seeing strong adoption of our cloud portfolio as customers select SAP for their business transformation. Our strategy is working,” said Chief Executive Officer Christian Klein.

SAP ditched its mid-term forecasts last October as Klein went all-in on cloud services that generate subscription revenue spread out over time, in contrast to legacy software licences that deliver chunky up-front fees.

He launched Rise with SAP, an all-in-one digital transformation package, at the start of this year and strong take-up helped drive 20% growth in the current cloud backlog – a measure of incoming business – during the second quarter.

The S/4HANA current cloud backlog was up 48%, confirming progress on Rise with SAP. The company said it was seeing momentum, particularly in the United States, where it predicted an acceleration in cloud revenue growth in the second half.

Revenue, up 3% to 6.67 billion euros ($7.85 billion) in the quarter, was in line with median estimates of analysts compiled by Refinitiv. Operating profit, up 3% at 1.92 billion euros, was ahead of the median view.

SAP lifted its forecast for cloud and software revenue for the full year by 200 million euros to 23.6 billion-24 billion euros, while it now sees operating profit at 7.95 billion-8.25 billion euros – an increase of 150 million euros at the lower boundary.

The company, based in Walldorf, reports financials on a non-IFRS, or adjusted, basis at constant currencies to strip out effects such as the impact of share-based compensation or shifts in the dollar-euro exchange rate.

($1 = 0.8495 euros)

(Reporting by Douglas Busvine; Editing by Riham Alkousaa, Sherry Jacob-Phillips and Louise Heavens)

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