SAP’s Earnings: Growth From HANA, Cloud Services And Mobile Applications Expected

by Trefis Team
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SAP AG (NYSE:SAP) will release its second quarter earnings report on July 18. We expect the company to maintain high single-digit growth on the back of strong performance of HANA, cloud services and mobile applications. This would be the 14th consecutive quarter of consistent revenue growth, barring any major negative surprise. The launch of SAP’s ERP suite on its HANA platform in January is expected to continue to drive HANA’s revenue growth. Cloud services will also aid revenue growth. The continuing adoption of mobile devices as Internet touch points and trends such as “bring your own device” to work are driving popularity of its mobile applications. We expect operating margins to remain stable for the quarter.

In the last quarter, SAP reported an ~8% y-o-y growth in non-IFRS revenues, to €3,636 million (~$4.8 billion). Software and cloud subscriptions revenues grew almost 25% y-o-y, to €824 million (~$1.1 billion). The company also maintained its operating margins at ~25% while operating profits grew 8% to €901 million. Below we highlight some of the key factors affecting SAP’s business and what our expectations about their impact on the company are.

We currently have a $74 Trefis price estimate for SAP, which is in line with the current market price.

HANA, Cloud And Mobile To Drive Performance

SAP HANA remains the biggest growth engine for SAP with revenues tripling in the last quarter to €86 million (~$112 million). It has over 1,000 customers on it now and its popularity is growing fast. HANA’s relevance as a real-time analytics platform for big data and warehouses has been driving its popularity. For 2013, the company estimates that software revenue from SAP HANA will range between €650 million to €700 million. Its expectations are supported by the completion of the transition of the entire SAP ERP (Enterprise Resource Planning) suite onto the HANA platform in January. This has put it in direct competition with Salesforce.com, which is the leader in cloud-based CRM. We expect SAP to successfully cross-sell HANA and other software in its suite of products over the year and expect SAP HANA to define the company’s 2013 performance.

In addition, SAP’s performance in the last couple of quarters has also been helped by its strong focus on cloud services. The company strengthened its presence in the cloud market by acquiring two leading cloud providers – SuccessFactors and Ariba. The company has over 6,000 customers and more than 20 million users in the cloud. SAP aims to have a €2 billion cloud business in the long run.

The continuing adoption of mobile devices as Internet touch points will also continue to drive the growth for SAP. Currently, 15 billion of the world’s mobile devices are connected to the Internet. With trends like “bring your own device” gaining strength, we expect SAP’s mobile offerings will continue to gain traction as companies try and connect their employees with with real-time information.

The Americas To Lead Growth

In contrast to most companies that are seeing high growth in developing markets compared to developed markets, we expect SAP to post higher revenue growth in the developed markets including the U.S. Despite the delayed budgetary cycles in the U.S.due to the federal budget uncertainty, strong growth from cloud subscriptions and support services should lend support.

We expect an improving economy to speed up this growth going forward. Other established markets such as U.K., Sweden and Switzerland are also expected to grow at double digit rate. Asia-Pacific and Japan region, however, may continue to weigh. External factors such as lower-than-expected demand for IT investments from state-owned enterprises in China have hurt the company in Q1. We have yet to see if the stability provided by the new government will help it return to solid growth going forward.

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