SAP Shares Slump After Cloud Business Growth Disappoints

   By Mauro Orru

Shares of German business-software company SAP plunged in Friday morning trading after the group posted cloud revenue growth below analysts' expectations for the second quarter, prompting SAP to cut its cloud revenue projection for the year.

At 0725 GMT, SAP shares traded 5.2% lower at EUR119.88.

Reporting on a non-IFRS basis, the Walldorf, Germany-based company said Thursday that total revenue had climbed to 7.55 billion euros ($8.40 billion) from EUR7.21 billion in last year's second quarter, with cloud revenue up 19% to EUR3.32 billion and software-licenses revenue down 26% to EUR316 million.

SAP is moving away from software-licenses sales, once its biggest revenue streams, to subscription-based cloud services, banking on a more profitable and predictable model based on recurring revenue.

The group said its cloud business had delivered a strong performance across all regions in the quarter, citing "outstanding" growth in Germany, Brazil and India.

Operating profit increased to EUR2.06 billion from EUR1.68 billion, with SAP's closely watched operating margin up to 27.2% from 23.3%.

Analysts had forecast total revenue of EUR7.60 billion and cloud revenue of EUR3.40 billion on operating profit of EUR1.93 billion and a 25.6% operating margin, according to a company-provided consensus on a non-IFRS basis.

SAP, like other European software companies, presents its figures as two sets of numbers. One set is based on the International Financial Reporting Standards--an international accounting method that seeks to provide a global reporting standard--though analysts and investors tend to follow SAP's non-IFRS numbers. Those figures exclude share-based compensation, restructuring expenses and acquisition-related charges.

For 2023, SAP now expects non-IFRS operating profit at constant currencies between EUR8.65 billion and EUR8.95 billion, up from EUR8.6 billion to EUR8.9 billion as previously expected. However, cloud revenue at constant currencies should range between EUR14 billion and EUR14.2 billion, and no longer to EUR14.4 billion as previously expected.

The downgrade to cloud revenue guidance comes just two months after SAP updated its 2025 targets, a development that will likely leave investors scratching their heads, Jefferies analysts wrote in a note to clients. "Given management optimism through the quarter, we doubt investors will be sympathetic," they said.

Write to Mauro Orru at mauro.orru@wsj.com; @MauroOrru94

(END) Dow Jones Newswires

July 21, 2023 03:48 ET (07:48 GMT)

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