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SAP Beats Q1 Earnings on HANA's Success, Outlook Stable - Analyst Blog

Zacks Equity Research
Updated

SAP SE SAP reported first-quarter non-IFRS earnings of 58 cents per share in eurozone currency, increasing 5% from the prior-year quarter tally. In U.S. dollar terms, earnings came in at 65 cents per share, easily surpassing the Zacks Consensus Estimate of 53 cents by 9.4%.

SAP’s impressive results were mainly driven by excellent performance of the SAP HANA development platform, which recently doubled its customer base to 6,400. This growth was further augmented by SAP S/4HANA’s early traction that has gained 370 customers year-to-date.

Non-IFRS total revenues for first-quarter 2015 aggregated €4.5 billion ($5.1 billion), up 22% year over year and comfortably beating the Zacks Consensus Estimate of $4.95 billion.

The quarter benefited largely from new cloud bookings, which is considered to be the key measure for SAP's sales growth. The company’s cloud business grew an impressive 121% in the first quarter with sales of €120 million ($0.14billion). Both cloud and business network of the company have experienced rapid growth in the quarter.  

SAP also reported first-quarter 2015 non-IFRS operating profit of €1.06 billion ($1.19 billion), an increase of 15%.

Total Revenue by Regions

In terms of regions, Europe, the Middle East and Africa (‘EMEA’) remained a strong performer in the first quarter, mainly driven by excellent performance of both core and cloud business. The company’s cloud traction business was the clear winner, boosting cloud subscriptions and support revenues by 114%, especially led by a robust performance in the U.K.  Germany was also a strong performer, contributing 13% to the cloud and software revenues. However, macroeconomic uncertainties in Russia and Ukraine continued to hurt revenue growth.

SAP’s performance in the Asia Pacific Japan (‘APJ’) region was also remarkable, attributable to strong growth in Japan and India. In this region, Non-IFRS cloud subscriptions and support revenues grew a staggering 137%. On the other hand, non-IFRS cloud and software revenues too, witnessed 38% growth.

The Americas region posted a decent performance, with notable growth of 136% in non-IFRS cloud subscriptions and support revenues, mainly led by a strong performance in the U.S. In this region, non-IFRS cloud and software revenues grew 34%. This quarter also witnessed a turnaround of business in Brazil, primarily driven by strong growth in software license revenues.

Liquidity

At quarter end, SAP’s operating cash flow advanced 0.8% to €2.37 billion ($2.56 billion), while free cash flow inched up 0.5% to €2.23 billion ($2.41 billion), both on a year-over-year basis.

As on Mar 31, 2015, SAP had total group liquidity (including cash and cash equivalents and short-term investments) of €5.33 billion ($5.76 billion).

2015 Guidance

Despite impressive performance in the quarter, SAP management has reiterated its 2015 outlook, with non-IFRS cloud subscriptions and support revenue in a range of €1.95–€2.05 billion. The company’s Concur and Fieldglass acquisition are expected to contribute 50% of this growth. Also, SAP has not changed its projection range of 8–10% on a constant currency basis for cloud & software revenues in this year. Similarly, non-IFRS operating profit is also expected to scale the prior-year range of €5.6–€5.9 billion for 2015.

However, if currency fluctuations persist, then for full-year 2015, the company expects 8–11% growth in non-IFRS cloud and software revenues and 10–13% increase in non-IFRS operating profit.

Our Take

Mirroring the views of management, we believe SAP’s efforts toward developing a customer-centric approach and fostering innovation are gradually yileding results. Encouragingly, SAP’s business network, which ranks among the best in the entire world, facilitates the uninterrupted trading of 1.8 million connected companies. These apart, we believe that the company will continue to benefit from its SAP HANA platform, which is likely to experience a surge in potential customers.    

SAP currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the industry include Interactive Intelligence Group Inc. ININ, MicroStrategy Inc. MSTR and Manhattan Associates, Inc. MANH. While both Interactive Intelligence Group and MicroStrategy hold a Zacks Rank #2 (Buy), Manhattan Associates sports a Zacks Rank #1 (Strong Buy).

Note: €1= $1.128 (average for the period Jan 1, 2015 – Mar 31, 2015)
 


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