SAP SESAP reported third-quarter 2015 non-IFRS earnings of €0.98 per share, up 16.7% from the year-ago quarter tally of €0.84.
Following this news, shares of the company rose almost 1% during the regular trading session on Tuesday.
SAP’s impressive bottom-line performance came on the back of strong revenue growth. The company’s strong focus on operational excellence, robust cloud bookings and exponential market traction of S/4HANA also contributed to its impressive earnings performance in the quarter.
Non-IFRS total revenue aggregated almost €5 billion ($5.5 billion), up 17.1% on a year-over-year basis. The quarterly results benefited largely from new cloud bookings, which, considered as the key measure for SAP's sales growth, shot up 102%.
All three segments reported by SAP, namely, cloud subscriptions and support, cloud and software, and software licenses and support, witnessed significant growth during the quarter. While the company’s non-IFRS cloud subscriptions and support revenues surged a massive 116%, non-IFRS cloud and software revenue grew 19%. Similarly, software licenses and support revenues were up 11% on a year-over-year basis.
SAP also reported third-quarter 2015 non-IFRS operating profit of €1.62 billion ($1.8 billion), an increase of 19.2% on a year-over-year basis.
Quarterly Highlights
SAP’s human capital management (‘‘HCM’’) applications continue to act as a main growth driver with SuccessFactors Employee Central gaining 800 customers in just one year. Also, the company’s Customer Engagement and Commerce solutions have garnered significant commercial success, supplementing its overall profitability.
Moreover, unparalleled market growth of SAP S/4HANA platform (1300 customers year to date) continues to drive the company’s top-line growth. This apart, sales in the company’s business network segment (which recorded 159% year-over-year growth) soared on the back of efficient electronic commerce capabilities. In this regard, successful integration of Concur has proved to immensely beneficial for the company’s growth.
Revenue by Regions
The Europe, the Middle East and Africa (‘‘EMEA’’) region remained a strong performer in the third quarter, mainly driven by strong sales growth in Non-IFRS cloud subscriptions & support (up 67%) and cloud & software segments (up 13%). Double-digit growth in cloud bookings also supplemented the top-line performance in the region. Germany and France emerged as strong performers with robust growth in software license business.
SAP’s performance in the Asia Pacific Japan (‘‘APJ’’) region was also remarkable, attributable to strong prospects for cloud and software business in Indiaand South Korea. In this region, Non-IFRS cloud subscriptions and support revenues grew a staggering 88%. Also, non-IFRS cloud and software revenues rose 8%. The company witnessed double-digit growth in cloud bookings in this region too.
The Americas region posted double-digit growth, with cloud subscriptions and support revenues up 139%, as well as a whopping triple-digit improvement in cloud bookings. In this region, non-IFRS cloud and software revenues grew 32%. Notably, rebound of Latin America amid macroeconomic volatility acted as a significant growth driver for the region.
Liquidity and Cash Flow
For nine months ended Sep 30, 2015, SAP’s operating cash flow advanced 5.2% to €3.2 billion ($3.6 billion); while free cash flow increased 8.1% to €2.8 billion ($3.1 billion), both on a year-over-year basis.
As on Sep 30, 2015, SAP had total group liquidity (including cash and cash equivalents and current investments) of €4.6 billion ($5.2 billion) compared with €4.2 billion as of Jun 30, 2015.
2015 Guidance Reiterated
Based on rapid market traction of the cloud business, SAP management has reiterated its 2015 outlook, with non-IFRS cloud subscriptions and support revenues in a range of €1.95–€2.05 billion in terms of constant currency. The company’s Concur and Fieldglass acquisition are expected to contribute 50% of this growth.
Also, SAP maintained its earlier guided range of 8–10% growth for cloud & software revenues on a constant currency basis for 2015. Similarly, non-IFRS operating profit is also expected in the prior-year range of €5.6–€5.9 billion for 2015.
However, if the currency exchange rate remains at par with Sep-2015 average level for the rest of the year, SAP expects 2-4% points of currency benefits on non-IFRS operating profit and cloud & software growth for the fourth quarter of 2015. If the exchange rate remains unchanged for full-year too, then the company expects currency benefits of 7–9% points for both non-IFRS cloud & software and operating profit gains.
Our Take
SAP has established dominance over three of the most critical client demand areas, namely, efficient customer engagement, human capital management and interconnected commerce network, which, in turn, support its growth. In order to maintain its competitive edge, the company diligently upgrades its cloud platforms, and this is likely to attract more clients over time.
Apart from this, SAP’s business network, which ranks among the best in the entire world, is also expected to supplement its top-line growth in the quarters ahead. At the same time, we believe the company’s remarkable cloud booking rates indicate solid prospects for the rest of the year and beyond.
SAP currently has Zacks Rank #3 (Hold). Better-ranked stocks in the industry include Callidus Software Inc. CALD, Interactive Intelligence Group Inc. ININ and Cornerstone OnDemand, Inc. CSOD. All three stocks hold a Zacks Rank #2 (Buy).
Note: €1= $1.1122 (average for the period Jul 1, 2015 – Sep 30, 2015)
€1= $1.1170 (average for the period Jan 1, 2015 – Sep 30, 2015)
€1= $1.109 (on Sep 30, 2015)
1 SAP ADR= 1 Ordinary Share
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