SAP previews modest Q4 results

Profile picture for user gonzodaddy By Den Howlett January 9, 2014
Summary:
SAP marginally misses analyst expectations for Q4 2013 but doesn't rock the market. Even so, important questions remain.

SAPlogo
In a surprise announcement, SAP reported Q4 results that fell short of analyst expectations. I say surprise because all the soundings I was taking in the run up to the end of year suggested the company was on track to hit its numbers. Soundings I took yesterday suggested no-one inside the company was especially jittery. Looked at objectively, the miss was marginal, possibly reflecting less than a handful of large deals that fell through the crack. Nevertheless, the miss is significant.

Full details will come later but this is what we know today:

  • SSRS Revenue Guidance Achieved, 4th Consecutive Year of Double-Digit Growth: Full Year 2013 Non-IFRS Software and Software-Related Service Revenue Increased 11% at Constant Currencies (6% at Actual Currencies to €14.03 Billion)
  • Cloud Subscription & Support Revenue Guidance Exceeded: Full Year 2013 Non-IFRS Cloud Subscription & Support Revenue Increased 130% at Constant Currencies (121% at Actual Currencies to €758 Million)
  • Strong HANA Performance: Full Year 2013 HANA Software Revenue Increased 69% at Constant Currencies to €664 Million (61% at Actual Currencies to €633 Million compared to Guidance Range of €650 – €700 Million)
  • Operating Profit Guidance Achieved: Full Year 2013 Non-IFRS Operating Profit Increased 13% at Constant Currencies to Approximately €5.9 Billion (Compared to Guidance Range of €5.85 – 5.95 Billion), Resulting in Non-IFRS Operating Margin Expansion of 140 Basis Points at Constant Currencies to 33.4%

Sounds good doesn't it except that it masks weakness in year over year growth:

SAP results

 

Of note here is that HANA related revenue at €664 million (constant currencies) came in at the lower end of the €650-700 million forecast. This was accompanied by modest growth in support services revenue which include the all important high margin maintenance revenue.

These are the first obvious signs that SAP is in the middle of a genuine business model shift in a quarter that should be the best of the year. This has been on the cards for a long time. The speed at which this shift occurs and the impact of competition from Workday and Salesforce.com in particular will be questions on everyone's lips at the forthcoming analyst call.

The broader question is whether SAP can continue to be regarded as a growth business or whether the model is now shifting to one that focuses upon profit. There are sound arguments for both but it is difficult to see how SAP can have both at the same time.

So far, the markets have taken the news in their stride with SAP's share price unchanged from yesterday's close.

Vendor watchers will draw the inevitable comparisons with Oracle which also reported a revenue rise of two percent in its last quarter but crucially from a market perspective, marginally above expectations.

Disclosure: SAP, Workday and Salesforce.com are partners at the time of writing.