What To Watch For In SAP’s Q1 Earnings

SAP (NYSE:SAP) fared well in 2016, and we expect this trend to continue when the company reports its first quarter earnings on April 25th. We expect growth across business segments, as the company has maintained leading positions in the Enterprise Resource Planning (ERP) and Supply Chain Management (SCM) software markets, as well as a solid position in the CRM software market. While the company’s revenue saw around 6% growth in 2016, consensus estimates call for even better growth  (9% year-on-year) in the first quarter. Similarly, the EPS, which grew around 3% for the whole year, is expected by increase significantly for Q1.

SAP’s Cloud business, aided by a phenomenal increase in new bookings, was the standout performer in 2016. The company continued its dominance in the Enterprise Resource Planning (ERP) software market, with more than 5,400 new customers adopting its S/4HANA platform.  This was almost twice the prior year number, with over 30% of these new customers added in the last quarter alone. Moreover, with 85% of its customers still using the earlier platform and expected to shift to the newer one in the near future, we believe the customer count will increase strongly. We estimate around 5% growth in SAP’s ERP revenue for the entire year, and believe that the Q1 results will reflect similar growth.

SAP is also rapidly expanding its presence in the Internet of Things (IoT) space with new products and acquisitions. This space could drive substantial growth for SAP over the long run. Combined with its ongoing efforts to strengthen its offerings in the machine learning space, the company is expected to do well in the competitive software industry.

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