over 3 years ago • 2 mins
Cloud wannabe SAP reported worse-than-expected third-quarter earnings on Monday, and there’s a 100% chance its shares suffered their biggest fall since 1999 😢
SAP – which makes business operations software – is Europe’s biggest technology company by revenue. And while that revenue did fall by 4% compared to the same time last year, it was by no means the only reason the company’s stock came crashing down.
See, SAP’s increasingly been shifting away from “license software” and the up-front fees it brings, in favor of the faster-growing but slower-to-arrive profits of subscription cloud services ☁️ Combine that with the delay as nervous businesses hold off on investing in new software, and SAP’s hand might’ve been forced: it scrapped its revenue and profit growth targets altogether for 2023.
SAP currently makes around 30% of its revenue from cloud computing, but it’s aiming to get that to 60% by 2025. And considering how quickly the market as a whole has been growing, investors have generally been supportive of its plans 📈 But the segment is already showing the company diminishing returns: cloud revenue grew 14% in the third quarter versus the same time last year – down from 25% in the first quarter of 2020. And SAP revealed on Monday it’ll have to invest more in its cloud business than it previously thought if it wants to make it work – not exactly something investors wanted to hear.
With the cloud industry expected to grow 19% annually over the next two years, competition – with Salesforce, Oracle, and Microsoft – is fierce 🥊 But given that SAP is the first to announce its earnings, it’s hard to say if it’s been a rough time for the market as a whole, or if its rivals have just been pinching its business. Investors will find out soon enough: Microsoft is set to report its earnings late on Tuesday.
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