Cloud Growth Lifts SAP Stock, Hurts Bottom Line
April 25 2017 - 12:07PM
Dow Jones News
By Nina Trentmann
Shares of SAP SE's hit an all-time high Tuesday on the back of
strong growth in the cloud business. But it comes at a price.
Expenses related to share-based compensation at the German
software firm rise in tandem with a bump in stock price.
An increase of EUR1 in the share price results in increased
share-based compensation costs of around EUR20 million, said
finance chief Luka Mucic. SAP expects to spend between EUR900 and
EUR1.1 billion this year on share-based compensation.
The company's stock rose to EUR94.22 ($102.23) following the
company's first-quarter earnings report. It is up more than 33%
over the past year, according to FactSet.
"These are happy expenses," Mr. Mucic said in a Tuesday
interview with CFO Journal. "Our share price has increased
significantly, which is why costs for share-based compensation have
gone up, too."
During the first quarter, such costs were more than EUR360
million, compared with EUR109 million during the first quarter of
2016.
SAP had 85,751 employees as of March 31, of which around 65%
take part in one of the firm's several share-based compensation
programs.
Higher costs related to share-based compensation in part
contributed to a 9% drop in net profit during the first quarter.
Net income for the quarter was EUR521 million, compared with EUR572
million during the same period a year prior. Revenue climbed 12% to
EUR5.3 billion, boosted by sales of SAP's cloud services.
However, the company is spending less on employee compensation
programs than other firms in the cloud sector, Mr. Mucic said.
Growing competition in the cloud industry is forcing SAP to
spend significantly on share-based compensation, said Mark
Moerdler, an analyst at Sanford C. Bernstein & Co. "This is
part of what is necessary to retain talent," Mr. Moerdler said.
"SAP has a large U.S. footprint and is competing for talent against
other firms that use share-based compensation," he said.
U.S. technology companies offer more stock-based compensation
than their European counterparts, Mr. Moerdler said. Any decline in
profit, in part due to higher expenses, isn't "critical," he
said.
Despite the rise in costs, SAP doesn't plan to make changes to
its share-based remuneration programs. "We want to retain our
employees," Mr. Mucic said.
The firm is considering share buybacks later this year, Mr.
Mucic confirmed. SAP has around EUR1 billion available for tuck-in
acquisitions and share buybacks, with the supervisory board
debating both in July, he said.
Write to Nina Trentmann at Nina.Trentmann@wsj.com
(END) Dow Jones Newswires
April 25, 2017 11:52 ET (15:52 GMT)
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