A Look At SAP’s Projected Growth
Software giant SAP (NYSE:SAP) has performed strongly over the past couple of years. The company reported record revenue ($28.2 billion,+16% year-over-year) in 2017, and expects to grow by nearly 7% annually over the next two years. While revenue growth was seen across segments, SAP’s Cloud business, aided by a strong increase in new bookings, was the standout performer. The company continued its dominance in the Enterprise Resource Planning (ERP) software market, with more than over 7,900 customers adopting its S/4HANA platform since inception in 2015. With over 80% of its customers still using the older platform, and expected to shift to the newer one in the near future, there is tremendous potential which the company expects to tap.
We have also created an interactive dashboard which shows our forecasts for the company’s revenues. You can modify the different revenue drivers to see how changes impact the company’s expected revenues.
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SAP’s Segment Revenue Growth
SAP generates revenue from two segments: Cloud and Software revenue, and Services revenue. The Cloud and Software segment generated around $23.5 billion in 2017, and we expect it to grow by 5% annually. As more and more companies adopt cloud services, the overall cloud market has been expanding at a rapid rate. Aided by a phenomenal increase in new cloud bookings, SAP’s revenue from Cloud Support and Services grew 34% annually in between 2015-2017. SAP is also rapidly expanding its presence in the Internet of Things (IoT) space with new products and partnerships. This is a multi-billion dollar market which could help drive the next phase of SAP’s Cloud revenue growth. Consequently, we estimate Cloud revenues to grow by 17% annually going forward. The recent addition of multiple Internet of Things (IoT) solutions to the SAP Leonardo digital innovation system highlights SAP’s renewed focus on bolstering its foothold in the IoT domain, which could drive the company’s top line in the future. Combined with its ongoing efforts to strengthen its offerings in the machine learning space, SAP is likely to fare well going forward despite the heavy competition. We forecast Software revenue to grow by about 5% annually.
The Services segment generated $4.7 billion in 2017, and we expect it grow by around 4% annually. As more customers adopt SAP’s products, it should lead to more demand for professional services such as the implementation of cloud and on-premise software, premium support, messaging and payment services.
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