SAP Q3 2014 - cloud momentum coupled with weakness in core continue
- Summary:
- Steady as she goes as SAP beats profit for Q3 2014 but signals weaker profit for full year as it continues cloud investments.
During a call, the company suggested that the full year outcome forecast is in part due to investments being made in the cloud business. However, in the detailed statement, I note there are a number of significant if non-recurring charges such as restructuring at €43 million and litigation costs of €17 million in the quarter.
Top line cloud subscription revenue continues to accelerate as the impact of acquisitions kicks in. This time, SAP reported year over year growth of 45% to €277 million and raised its full year outlook to €1.04-1.07 billion in cloud subscription revenues. Although the company does not break out the number of cloud customers, it now claims some 44 million users of its cloud services.
Weakness in what I term the core business continued with a year over year decline of 2% to €951 million from €975 million a year ago. Support services climbed a healthy 9% to €2.37 billion.
SAP provided further color on HANA, claiming it now has HANA 4,100 customers. If past indicators are maintained, then roughly a third of those same customers will be in production. What is less clear however is the contribution made by HANA to the overall revenue number.
SAP has long claimed that cloud revenue provides a more predictable model for the future. While it is not making specific claims for the mid-term, the good news is that the overall rate at which cloud subscriptions are growing has outstripped the rate at which the core business is declining in absolute terms. From the detailed blurbs, SAP says that prices achieved are not experiencing any particular softness. That would fit with an overall healthier economic environment but there will be variations from region to region.
Elsewhere, SAP may draw comfort from the fact that a recent DSAG survey suggests customers in that geography will not move to the cloud for core apps anytime soon. The question remains what additional on premise investments those same customers will be prepared to make in SAP technology. In the detailed notes, SAP committed to fresh investments in vertical markets but one would presume those will be primarily aimed at cloud deployments.
Unlike past quarters, I will not be fielding a call with the SAP board, nor will I be listening into the analyst call, since I will be traveling. However, I may update this report as new facts emerge.
Disclosure: SAP is a premier partner at time of writing.
