SAP Reported Worse-Than-Expected Earnings

SAP Reported Worse-Than-Expected Earnings

over 3 years ago2 mins

Mentioned in story

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 😢

What does this mean?

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.

Source: The Wall Street Journal, FactSet
Source: The Wall Street Journal, FactSet

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.

Why should I care?

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.

Daily Brief Image

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.

Daily Brief Image
Finimize

BECOME A SMARTER INVESTOR

All the daily investing news and insights you need in one subscription.

Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

/3 Your free quarterly content is about to expire. Uncover the biggest trends and opportunities. Subscribe now for 50%. Cancel anytime.

Finimize
© Finimize Ltd. 2023. 10328011. 280 Bishopsgate, London, EC2M 4AG