Weekly Enterprise Tech Software: Salesforce, Oracle and SAP

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It was another eventful week in the enterprise software market exiting the Labor Day Holiday, with companies continuing to aim for higher revenue growth through organic and inorganic channels. The stock market, after a strong year, was fairly quiet, even as the executive management of many software companies flocked to New York City to address investors at the Citi Bank Tech conference.

In this report, we present some of the key events for three of the largest enterprise software companies, Oracle Corp. (NYSE:ORCL), Salesforce.com (NYSE:CRM) and SAP SE (NYSE:SAP) from the past week.

Salesforce.com

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Last week, Salesforce rolled out a new online community offering called Salesforce1 Community Cloud, which is similar to the professional networking site LinkedIn (NASDAQ:LNKD). [1] The Community Cloud is built to enhance the operability of its mobile CRM platform Salesforce1, allowing managers, sales people and others to engage the Salesforce platform from the desk-to or remotely.

With a growing user base on the Salesforce1 platform, the Community Cloud allows users across a company’s sales division to interact with customers and other third-parties such as suppliers in a unified multi-device platform. This should enhance the operability of its mobile CRM platform Salesforce1 by creating synergies across a company’s sales division. Salesforce identifies the Community Cloud market as a rapid growth opportunity, which it sizes at $3.5 billion, and we concur with the company’s view on the new product offering.

We maintain our bearish view on Salesforce with a $55 price estimate, approximately 7% lower than its current market price. We estimate revenues of $5.25 billion and non-GAAP EPS of $0.57 for Salesforce this fiscal year.

Oracle Corp.

Oracle announced receiving an approval from the European Commission regarding the MICROS acquisition, which it followed with an initial tender offer for MICROS’ shares. [2] Oracle acquired MICROS systems, a provider of software, hardware and services hospitality businesses, in a transaction valued at $5.3 billion. Now that the acquisition is complete, we believe full integration of MICROS Systems could drive Oracle’s application and hardware sales higher.

On a different note, Oracle’s $1.3 billion verdict in penalties and damages awarded by a trial jury relating to a copyright infringement case against TomorrowNow (acquired by SAP) was vacated by a federal jury last week. A three-judge federal bench upheld a previous judge’s ruling, stating the previous award from the trial jury as “excessive” and “based on undue speculation”, awarding Oracle $357 million in damages. [3] Oracle has the option of rejecting the lower award and pursuing a new trial, although it would be prohibited from presenting hypothetical license damages.

We have a $46 price estimate on Oracle, approximately 10% higher than its current market price. We estimate revenues of $40.8 billion and non-GAAP EPS of $3.25 for fiscal year 2015 (ends May 2015) from Oracle.

SAP SE

SAP has had a lackluster week so far.  The company was recently in the news after a federal bench ruled against Oracle’s bid to revive its $1.3 billion awarded by an earlier trial jury. Should Oracle accept the damages verdict, SAP is liable to pay nearly $121 million in lost profits and $236 million in infringement profit to Oracle to settle the lawsuit.

More interestingly, SAP plans to increase its footprint in the Asia-Pacific region and has opened a data center in Shanghai in a joint venture with China Telecom Corp. [4] The entire Asia-Pacific region generated nearly €1.15 billion in revenues for SAP this fiscal year, with cloud subscriptions amounting to a meager €40 million. Initially, the SAP-China Telecom venture will use the data center to support sales of cloud-based human resources solutions. Going forward, other on-demand software suites for supplier and customer management, procurement and electronic commerce will be made available in the region.

SAP is the global leader in Human Capital Management and Supply Chain Management solutions, bolstered by the acquisition of FieldGlass, Ariba and hybris. We believe this entry into the Chinese market should add incremental revenue growth for the company on a longer term. We have a $96 price estimate for SAP SE, approximately 24% higher than its current market price. We estimate revenues of $23.7 billion (~€17.3 billion) from SAP in 2014 along with non-IFRS EPS of $5.18 for fiscal year 2015.

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Notes:
  1. Salesforce.com Launches New Cloud–Salesforce1 Community Cloud–Defining the Next Battleground for Customer Engagement, Salesforce Press Release, August 27, 2014 []
  2. Oracle Completes Initial Tender Offer for MICROS Systems, Inc. with approximately 82.8% of Shares Tendered, Oracle Newsroom, September 2014 []
  3. Oracle $1.3 Billion Jury Verdict in SAP Case Reduced, The Wall Street Journal, August 2014 []
  4. SAP Venture Opens Shanghai Center for China Cloud Push, Bloomberg, August 2014 []