The DAX 40 heavyweight corrected its annual targets on Thursday because cloud revenues were weaker than expected. Some large customers from the public sector have opted for a license instead of a cloud solution due to ongoing economic uncertainties, said CEO Christian Klein. “But that’s not a trend away from the cloud.”
The news was not well received on the stock exchange. On the Tradegate trading platform, they were quoted around four percent below the XETRA closing price in German after-hours trading. In its new forecast, SAP SE assumes a currency-adjusted increase in cloud sales of 23 to 24 percent for the current year. Previously, SAP had an increase of 23 to 26 percent over the previous year on the slip.
The cloud business is the declared future business of Walldorfer. Customers who use cloud-based SAP software pay a lower amount over a period of usually three years – but then often remain customers longer because they can no longer use the software without a contract. Sales can therefore be planned better for SAP than in the license business, where the software is sold for a high one-off payment.
SAP is becoming somewhat more confident with regard to the operating result for the full year. Earnings before interest and taxes (EBIT), adjusted for special effects, are expected to increase by eight to twelve percent currency-adjusted over the year. Here, the board previously had eight to eleven percent on the slip.
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In the past second quarter, cloud revenues were weaker than expected. Compared to the same period of the previous year, they increased by 19 percent to 3.3 billion euros in continuing operations. On average, however, analysts had expected more. Overall, revenues climbed 5 percent to 7.6 billion euros. The adjusted earnings before interest and taxes (EBIT) were 2.06 billion euros, 23 percent more than in the same quarter of the previous year. Here the group exceeded the expectations of the analysts.
The board of directors mainly blamed the weak economy for the dent in the cloud business. The business is temporarily suffering from the fact that customers from the public sector, for example, do not want to opt for a permanent cloud and thus a long-term solution, said Klein. “They’re not deciding against the cloud, they’re just postponing entry.” The order backlog is still excellent, also for the second half of the year.
The weakening economy is also putting pressure on the cloud business from other sources, said CFO Dominik Asam. Because the demand for temporary workers is shrinking, transactions on the Fieldglass brokerage platform have also declined. The more temporary workers are placed through the SAP subsidiary, the higher the income of the parent company.
The bottom line is that SAP’s profits were bubbling up – but not because of day-to-day business. With the sale of the US market researcher Qualtrics, the Walldorfers will benefit from a special income of around 3.2 billion euros. All in all, SAP made a profit of 3.4 billion, almost 17 times more than in the previous year.
When presenting the figures, CEO Klein also emphasized the growth opportunities through artificial intelligence (AI). With its data from the business world, SAP is excellently positioned to capitalize on the trend. Products with integrated AI solutions would be around 30 percent more expensive than without, driving sales, Klein said. The potential total market for SAP products is expected to double to $1 trillion by 2028.
WALLDORF (dpa-AFX)
Image source: SAP AG, Cineberg / Shutterstock.com, nitpicker / Shutterstock.com