Forecast raised: exceeds expectations in SAP series

Wednesday 13 October 2021

forecast raised
Exceeds expectations in SAP series

Europe’s largest software maker SAP posted higher-than-expected earnings in the third quarter and is raising its business outlook. The cloud business in particular is creating a sales bubble.

Software conglomerate SAP has raised its targets for the third time within a few months. Due to expected further growth in revenue in the cloud business, Walldorf-based DAX Group is forecasting higher profits and sales for the full year than ever before, as SAP announced Tuesday evening.

“Our strategy is clearly working,” said CEO Christian Klein. “We are experiencing record demand for our applications and our platform.” Business in the cloud is becoming increasingly important to rival Oracle. Currency-adjusted operating profit is expected to be between 8.1 and 8.3 billion euros in 2021.

Most recently, SAP raised its earnings estimate to 8.25 billion euros from 7.95 in July. Currency-adjusted cloud and software revenue is expected to grow between 23.8 and 24.2 billion euros for the full year. So far, SAP’s target was 23.6 to 24.0 billion euros.

We still have a long way to go before we set goals

“Our cloud business is growing faster and faster and continues to lead to our improved outlook for the full year,” said SAP CFO Luca Musik. The revenue generated by the cloud alone is expected to grow from 9.4 to 9.6 billion euros in 2021 – even higher than previously forecast. However, SAP is still a long way from its goal of increasing cloud revenue to more than EUR 22 billion by 2025.

The board of directors wants to align the nearly 50-year-old company more toward the cloud and leave the traditional software business behind with a licensing model for server-based computer programs. A business transformation program aims to attract approximately 400,000 corporate customers to the data cloud and encourage them to use rental applications over the Internet, driving sales change.

SAP announced that the proposal continues to meet with high demand. Currency-adjusted earnings in the third quarter rose two percent to 2.10 billion euros, according to preliminary data. After adjusting for currency effects, sales rose five percent to 6.84 billion euros. The so-called cloud backlog – a kind of order backlog for the next twelve months – increased by almost a quarter to 8.17 billion euros. With this metric, SAP aims to provide investors with insight into progress in moving the business to the cloud.