SAP Earnings Preview: Cloud Service To Ensure Sustained Growth Momentum

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European software giant SAP SE (NYSE: SAP) is scheduled to announce fourth-quarter earnings on Tuesday, January 24th. The company’s revenues grew by about 5% in the first nine months of 2016, and the consensus estimates peg fourth-quarter growth in the similar range. Throughout the year, the company continued to strengthen its existing cloud and software capabilities  with major product updates and new tuck-in acquisitions including Roambi, Altiscale, PLAT.ONE and Abakus. The company has maintained a leading positions in the markets for Enterprise Resource Planning (ERP) and Supply Chain Management (SCM) software, with a tertiary position in the Client Relationship Management (CRM) software market. Last year, the company released SAP S/4 HANA, a platform-as-a-service  for its software offering that notably includes In-Memory capability for heightened performance. This latest offering by the company has been well received by customers, with the customer count reaching 4,100 by the end of the third quarter of the current year. This growth momentum is expected to have continues into the fourth quarter as well.

Cloud Offerings Continue To Compliment Software Services’  Growth Momentum

Cloud subscriptions and support, which generate around 15% of the company’s overall revenue, has seen around 30% growth, primarily due to the 26% increase in new cloud bookings. With more and more companies looking to adopt cloud solutions, the growth in this segment is likely to have propelled the top-line growth for the company, in our view. This can be witnessed from the significant growth in the uptake of its ERP platform.

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 In August, the company acquired Altiscale, a startup that offers cloud-based versions of the Hadoop and Spark open source software for storing, processing, and analyzing data.  The deal is likely to have furthered the growth in cloud subscriptions. Moreover, the company’s leading positions in ERP and SCM segments is likely to have benefited the respective cloud solutions in both the domains.

The company continued to foray into multiple software solutions domains. SAP’s acquisition of PLAT.ONE, the First Enterprise-Grade IoT Application Platform, is likely to strengthen its offerings in the Internet of Things (IoT) space. The company also acquired Roambi and Abakus. The former is a developer of mobile business applications that enable users to access big data-sets in accessible mobile formats. And the latter is a  provider of online and offline media marketing software solutions for advertisers and consumers. These acquisitions are likely to have a positive impact on the company’s growth and strengthen its existing capabilities as well, thereby fortifying a platform for sustained organic growth.

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