SAP pre-announces, still sees growth for 2020

Apr 9, 2020 | Hot Topics

SAP became the latest company in our PLMish universe to pre-announce results for the quarter ended March 31, and offer some glimpses into how other companies may have fared — and to what the rest of 2020 may hold. You can read the full announcement here; these are the bits I found most interesting:

  • As others have also said, SAP found that “business activity in the first two months of the quarter was healthy. As the impact of the COVID-19 crisis rapidly intensified towards the end of the quarter, a significant amount of new business was postponed. This is reflected, in particular, in the significant year over year decrease in software licenses revenue”
  • Software licenses revenue was down 31% year over year in Q1 — likely, as others have pointed out, because new license sales often require face-to-face meetings and, in SAP’s case, quite possibly a longer sales cycle and heavier upfront investment that slowed deals. Nowhere in the info we have right now did SAP say it lost deals
  • Cloud revenue in Q1 grew 29%
  • Canceling the June in-person SAP user conference and follow-on events cost the company €36 million. The huge SAPPHIRE NOW user conference that’s typically in June, in Orlando, is a very glitzy event but I had no idea it could cost that much to unravel — so a fraction of what SAP would have spent on the actual event.

As for the rest of 2020, SAP said this:

The revised outlook assumes the current COVID-19 induced challenging demand environment deteriorates through the second quarter before gradually improving in the third and fourth quarter as economies reopen and population lock-downs end. Non-IFRS cloud revenue is now expected to be in a range of €8.3 billion to €8.7 billion at constant currencies (2019: €7.01 billion), up 18% to 24% at constant currencies. The previous range was €8.7 billion to €9.0 billion at constant currencies.

My take: the reality of working from home, using cloud-enabled tools, isn’t as cloud-y as we might hope. Many apps aren’t cloud-enabled so people are using the Internet to log in, remotely, to on-prem apps. Especially for ERP, with its massive data sets and security protocols, in-cloud is still a notion for many. I am surprised, though, that SAP isn’t anticipating more uptake of its S4/HANA cloud architecture as enterprises try to figure out how to work more effectively during the next disruption.

Non-IFRS cloud and software revenue is now expected to be in a range of €23.4 to €24.0 billion at constant currencies (2019: €23.09 billion), up 1% to 4% at constant currencies. The previous range was €24.7 to €25.1 billion at constant currencies.

My take: SAP’s recurring revenue (which they define as cloud SaaS licenses plus software maintenance) is around 70% of total revenue — so less than some of our PLMish companies but on par with others. The good news: slower growth than earlier expected, but still growth for 2020.

Perhaps the best bit of news was a terse sentence at the bottom of the press release:

SAP confirms its 2023 ambition which was previously published in its 2019 Integrated Report.

The bottom line: Economists have dozens of models of what will happen to the global economy in the short- and medium-term. Check McKinsey, if you’re interested. We’ve got sharp recoveries (the “V”), longer and slower U-shapes, wiggles and squiggles that go up and down … SAP, at least, sees itself back on a normal footing in time to meet its 2023 targets — by 2023.

SAP will report Q1 results on April 21.

I hope you and yours are well. It’s a scary time, so I offer this moment of zen:

That’s a screengrab of The Harbor of Dieppe by J. M. W. Turner, in one of the best museums in the world (IMHO), The Frick Gallery. It’s a mansion in New York City, and when I was in high school, my subway pass got me into the museum for free. The story goes that Mr. Frick donated the mansion and all of its art so that the rest of us could see it all, too. The best part: the art is on the walls of dining rooms, bedrooms, ballrooms — and one can totally imagine living in a space with this wonderful painting every day. I would go to the Frick after school and just pretend I lived there. Having breakfast with a Turner, tea with a Rembrandt … Google and The Frick have teamed up to make the collection available online — I urge you to virtually walk through the spaces, and pretend that you, too, live there!