SAP Lowers 2020 Guidance As Revenue Falls In Q3

Software company SAP SE SAP reported revenue of €6.5 billion for its third quarter on Monday, approximately 4% lower year-over-year. Its predictable revenue, that is, combined non-IFRS revenues from the cloud segment and the software support segment, for Q3 was 74%.

EPS for the quarter was €1.32 under IFRS, representing a 26% growth year-over-year, and €1.70 under non-IFRS with a 31% growth YoY. Fair value adjustments to investments made in Sapphire Ventures was a key contributor.    

Key Highlights: Cloud revenue for the quarter was €1.9 billion, 11% higher YoY but 3% lower compared to the previous quarter. SaaS/PaaS — excluding collections from Intelligent Spend but including the IaaS segment — added to a growth phase, whereas lower transactional revenues from the Concur segment negatively impacted the cloud segment by six percentage points.

Germany, the Netherlands, and Switzerland led the cloud revenues with a 22% growth rate in the EMEA region. Japan, Singapore, and South Korea were key players in the Asian market. Cumulative cloud revenues for the first nine months of the year exceeded €6 billion, up 20% YoY.

“Our expedited move to the cloud will ensure we continue our path as a cloud growth company while we remain focused on cost efficiency,” SAP CFO Luka Mucic said in a statement.

Revenues from software licensing and support dipped 7% YoY to €3.5 billion in Q3 and fell 5% YoY for the nine months ended Sept. 30.

Earnings Guidance: SAP CEO Christian Klein said that the company, “will accelerate growth in the cloud to more than €22 billion in 2025 and expand the share of more predictable revenue to approximately 85%.”

The full-year 2020 guidance anticipates a 72% predictable revenue share along with a drop in the non-IFRS total revenues in the range of €27.2 billion to €27.8 billion, compared to an earlier estimate of between €27.8 billion to 28.5 billion.

Forecasted Operating cash flows have been increased to €6 billion against initial estimates of €5 billion, with Free Cash flow numbers exceeding €4.5 billion compared to the previous €4 billion.

Non-financial targets include enhancing employee engagement, customer loyalty, and reducing carbon emissions. With a reduction in carbon emissions during the pandemic outbreak, SAP is targeting 150 kt of emissions, lower than earlier guidance of 238 kt.

Price Movement: After a 1.38% increase during regular market hours, SAP gained an additional 0.54% during Friday after-hours at $150.49.
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