SAP Shares Tumble Amid Operating Profit, Revenue Declines
October 26 2020 - 5:58AM
Dow Jones News
--SAP shares drop after 3Q declines in operating profit and
revenue
--The business-software maker lowered 2020 operating profit and
revenue outlook as the coronavirus pandemic continues to hit core
business units
--SAP replaced 2023 ambition with new 2025 targets to account
for the coronavirus impact and pivot to cloud
By Mauro Orru
Shares in business-software maker SAP SE opened 20% lower on
Monday after the company posted declines in operating profit and
revenue for the third quarter, cut its full-year outlook on
earnings and revenue, and replaced its 2023 ambition with 2025
targets as the coronavirus pandemic continues to bite.
At 0903 GMT, SAP shares traded 18% lower at EUR102.94.
Reporting on a non-IFRS basis, the Walldorf, Germany-based
company said operating profit for the quarter fell to 2.07 billion
euros ($2.46 billion) from EUR2.09 billion in the third quarter of
2019, with an operating margin of 31.7% compared with 30.6%.
Net profit for the period rose to EUR2.00 billion compared with
EUR1.55 billion.
SAP said lockdowns which have been reintroduced in some regions
made recovery uneven, prompting customers to reassess their
priorities in light of mounting business uncertainty, meaning
transactional revenue continues to suffer.
Total revenue slipped to EUR6.54 billion from EUR6.81 billion,
with cloud revenue rising to EUR1.98 billion from EUR1.81 billion
but software-licenses revenue fell to EUR714 million from EUR932
million. Services revenue dropped to EUR992 million from EUR1.16
billion.
Analysts at U.S. bank Jefferies said, while operating margin at
31.7% exceeded Street estimates of 31.0%, revenue was below
expectations. Software-licenses revenue of EUR714 million missed
Street estimates of EUR768 million, while cloud revenue of EUR1.98
billion was below estimates of EUR2.11 billion. Software-support
revenue of EUR2.85 billion also missed Street estimates of EUR2.91
billion, Jefferies's analysts said.
SAP cut its full-year outlook on operating profit and revenue as
demand recovery has been more muted than expected since the
reintroduction of lockdowns in some regions, and it no longer
expects a meaningful recovery in the SAP Concur business
travel-related revenues for the rest of the year.
Annual non-IFRS operating profit should range between EUR8.1
billion and EUR8.5 billion at constant currencies instead of a
EUR8.1 billion-EUR8.7 billion range as previously expected.
Non-IFRS revenue should come in between EUR27.2 billion and EUR27.8
billion at constant currencies instead of between EUR27.8 billion
and EUR28.5 billion.
Analysts at German brokerage Berenberg said the new operating
profit target is 2.1% below consensus of EUR8.48 billion, with
revenue 2.7% below consensus of EUR28.25 billion.
"The company lowered its 2020 cloud revenue by EUR400 million,
or 5%, which implies a steep deceleration in 4Q," Berenberg
analysts said, adding that the deceleration in software license and
cloud growth in the third quarter is surprising.
SAP has also replaced its 2023 ambition with new 2025 targets,
accounting for a greater impact from coronavirus and a faster pivot
to the cloud as it expects muted revenue growth in 2021 and 2022
before accelerating from 2023 onward.
By 2025, SAP expects non-IFRS operating profit of more than
EUR11.5 billion, non-IFRS revenue of more than EUR36 billion, and
more than EUR22 billion in non-IFRS cloud revenue, expanding its
more predictable revenue share to roughly 85%.
Analysts at U.S. bank Citi, who predicted shares would come
under significant pressure at market open, expect 2023 revenue
consensus to move lower to about EUR30 billion from around EUR35
billion, given SAP's expectations of muted revenue growth in 2021
and 2022.
Berenberg analysts agree on the investors' reaction.
"We believe abandoning its 2023 targets is unlikely to be well
received by investors, given a more forgiving window was open at
the start of the pandemic," Berenberg analysts said.
Write to Mauro Orru at mauro.orru@wsj.com; @MauroOrru94
(END) Dow Jones Newswires
October 26, 2020 05:43 ET (09:43 GMT)
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