SAP AG (NYSE:SAP) will announce its Q2 earnings on Wednesday. Though SAP’s revenue streams are well diversified, but Enterprise Resource Planning (ERP) software and Customer Relationship Management (CRM) software comprise almost 55% of our valuation for the company. SAP is the leader in almost all the verticals it operates, and we are looking for updates on its ERP and CRM initiatives as well as gross margin outlook in this earnings report. SAP reports primarily with Microsoft (NASDAQ:MSFT), Oracle (NASDAQ:ORCL), Salesforce.com (NYSE:CRM), IBM (NYSE:IBM) and Tibco (NASDAQ:TIBX). We currently have a $64 price estimate for SAP which is about 10% above the current market price.
Enterprise Resource Planning Software Market Share
SAP has traditionally been the market leader in the ERP software market where it primarily competes with Oracle and Microsoft. However, its market share has been declining due to increasing competition from new entrants like Infor and Sage. It currently has a 27% share of the huge market which is expected to be worth nearly $25 billion in 2011.
We expect its share to slowly decline to less than 25% by the end of the Trefis forecast period. Since the ERP division comprises almost 37% of the Trefis price estimate for SAP, we will be focusing on the revenues generated by this division.
Growth in the CRM Market
SAP has also been a leader in the market for CRM software, in which it competes with the likes of Oracle, Salesforce.com and Microsoft. It recently launched Sales OnDemand, a cloud based CRM application which should help it gain market share in this crowded segment which is expected to be worth nearly $12 billion in 2011. The CRM division contributes nearly 20% to the Trefis price estimate for SAP.
Increasing Gross Profit Margins
SAP has had relatively high gross profit margins of nearly 78%-80% for almost its entire product line, but they have been decreasing in the last couple years. We expect the profit margins to increase marginally going forward, but we should see more concrete numbers in the earnings release.
