SAP raises its revenue outlook for 2017

SAP RAISED its outlook for revenue after reporting a better-than-expected 10 percent quarterly sales jump, as it kept attracting customers to a new version of its flagship software.

The German software firm is now projecting sales of €23.3 billion (R347bn) to €23.7bn for the year, based on constant currencies and up about a €100 million on both ends of its previous prediction. And it’s raising its outlook on cloud and software revenue for the year to 6.5 percent to 8.5 percent growth, up from 6 to 8 percent. SAP also announced a share buyback of up to €500m this year.

Chief executive Bill McDermott is attracting new customers through a major update of SAP’s accounting, manufacturing and logistics software called S/4 Hana. The system had 6 300 users at the end of June, an acceleration of sales compared with 5 800 customers at the close of March, when growth had tailed off.

S/4 lets businesses run software tasks on their own machines, or in a cloud-computing arrangement hosted by SAP or one of its partners.

Second-quarter revenue rose to €5.78bn, SAP reported yesterday, compared with the €5.67bn estimate of analysts surveyed.

Profit

Operating profit, excluding share-based compensation, amortisation and other charges, was €1.57bn, compared with the average estimate of 1.58 billion euros.

SAP is investing heavily in research and development and sales of its business apps, data analysis and Internet of things software, which means profit – up 4 percent – isn’t growing nearly as quickly as sales. It hired nearly 3 000 people in the first half of the year.

Profit margin at the Walldorf, Germany-based company remained suppressed as it spends to build cloud-computing capacity. Operating margin was 27.2 percent, compared to analysts’ 28.1 percent average estimate. Investors are looking for margins above 30 percent starting next year.

“If you invest in the cloud, you expand quickly – you will look at a margin impact,” McDermott said. “But here’s the good news. Because we did the hiring in the first half of the year we’ll get the leverage of that in the back half” and in 2018.

While it raised its outlook on overall revenue, SAP stuck to a forecast first issued in January for 2017 operating profit of €6.8bn to €7bn. It expects 2017 cloud subscriptions and support revenue of between €3.8bn and €4bn at constant currencies, up as much as 34 percent from 2016’s €2.99bn. – Bloomberg