SAP Sales, Earnings Miss Estimates Amid Shift to Online

SAP AG (SAP), Germany’s biggest technology company, reported sales and earnings that trailed analysts’ estimates as it spends to deliver more of its software over the Internet and currency fluctuations weigh on revenue.

First-quarter sales rose 2.7 percent to 3.7 billion euros ($5.1 billion), SAP said today. Analysts predicted 3.8 billion euros, the average of estimates compiled by Bloomberg. Operating profit, excluding some items, added 2 percent to 919 million euros, missing the average estimate of 975 million euros.

SAP, which supplies programs for managing inventories, deliveries, financial performance and human resources to more than 200,000 companies, is reckoning with a slowdown in sales of enterprise-planning software as businesses turn to newer products designed to be delivered and updated over the Web. Walldorf, Germany-based SAP and U.S. rival Oracle Corp. (ORCL) have been acquiring cloud-computing suppliers to enliven sales and fend off Salesforce.com Inc. and Workday Inc.

“If SAP can demonstrate they’re not cannibalizing the on-premises business, the market will be patient,” Michael Briest, an analyst at UBS AG who recommends buying SAP shares, said before the report.

Shares of SAP fell as much as 4.1 percent and declined 3.4 percent to 56.45 euros at 9:31 a.m. in Frankfurt. The stock was little changed over the past year through yesterday, compared with a 24 percent gain by Germany’s DAX Index.

Goal Delayed

Sales of new software licenses, an indicator of future revenue, fell 5.2 percent to 623 million euros, compared with the 656.1 million-euro average estimate. Cloud subscriptions rose 32 percent to 221 million euros, compared with the average estimate of 211.6 million euros.

In January, the company delayed its goal of reaching a 35 percent operating margin until 2017. Analysts predict 30.6 percent for this year, according to data compiled by Bloomberg.

SAP is also unlikely to reach a goal of 2 billion euros in cloud sales by next year despite acquiring companies including SuccessFactors Inc. and Ariba Inc. for billions of dollars in recent years, Walter Pritchard, an analyst at Citigroup Inc., said in a March 17 research note. That’s turning investors “sour” on SAP’s cloud-computing story, he said.

“Even though these businesses have generally performed well, they represent just 14 percent of revenue,” said Pritchard, who recommends buying the shares. On March 26, SAP agreed to buy Fieldglass, a closely held maker of online human resources software.

Hana Push

Revenue from software and related services grew 10 percent in the Americas, excluding currency fluctuations. In the Europe, Middle East and Africa region, that growth was 8 percent. The Crimea crisis is affecting business, Co-Chief Executive Officer Bill McDermott said on a conference call with reporters.

“We do see that some things are growing slower there,” he said. “But nothing is lost” and SAP expects the business to restore over time.

Net income rose about 3 percent to 534 million euros. The company reiterated its forecast for full-year operating profit of as much as 6 billion euros at constant currencies. Exchange-rate fluctuations are affecting reported numbers negatively, the company said.

Co-CEOs McDermott and Jim Hagemann Snabe are positioning the 42-year-old company to deliver products for cloud computing and analyzing large amounts of data, two trends fueling corporate software purchases.

SAP, the world’s third-biggest independent software company after Microsoft Corp. and Oracle, also sells a database program called Hana meant to make its current products run faster.

Online Rivals

SAP’s license-sales growth will be in the low single-digit percentage through 2017, said UBS’s Briest. Oracle hasn’t posted sales growth of more than 5 percent in 10 quarters, and its license and cloud subscriptions grew less than 4 percent in its fiscal third quarter, the company said in March.

By contrast, Salesforce in February reported fiscal fourth-quarter sales that grew 37 percent, and more than 200 deals worth more than $1 million as it moves upmarket. In a recent speech at an investor conference, Salesforce Vice Chairman Keith Block said the company is targeting SAP installations at customers as candidates for replacement.

Workday, which sells a cloud-computing suite of HR and financial software and aims for the same large customers who buy SAP, in February reported fiscal fourth-quarter revenue that grew 74 percent. SAP, Oracle, Salesforce and Workday compete in a $21.6 billion market for cloud-computing applications that’s estimated to grow 19 percent annually through 2017.

SAP on March 20 raised its dividend 18 percent to 1 euro a share.

(Source: Bloomberg)