SAP raised its operating profit outlook for the year, bolstered by strong growth in its cloud business, as the German software maker pushes ahead with a major restructuring.
The Walldorf-based company reported a 26% increase in new cloud bookings for the first quarter at constant currencies, picking up speed compared to the October-December period in the metric closely watched by analysts.
SAP also said on Wednesday that it’s planning “new initiatives to accelerate operational excellence and value creation” and will brief investors and analysts on those plans during a special capital markets day in November. The company will evaluate a share buyback programme and focus on “tuck-in” acquisitions.
CEO Bill McDermott is betting big on the cloud business as a source of future sales growth and has spent more than US$10-billion to buy American cloud start-ups Qualtrics International and Callidus Software to better compete with Salesforce.com and Oracle.
“We see years and years of sustained growth in the cloud,” McDermott said in a phone interview. SAP’s executive team is putting “total focus” on improving margins in the coming years, he said.
SAP now expects to reach a non-IFRS cloud gross margin of 75% in 2023, and increase the non-IFRS operating margin by one percentage point a year on average. For 2019, the company expects profit to rise as much as 12.5%, up from a previous prediction of as much as 11.5%.
Cloud revenue
McDermott is reassigning jobs, training workers and drawing up voluntary leave packages — a programme that cost €886-million in the first quarter. Overall sales grew to €6.1-billion, driven by a strong increase in cloud revenue.
SAP is dealing with a management shake-up after the 5 April announcement that the president of its cloud business, 27-year SAP veteran Robert Enslin, was departing the company. It was later revealed he’d left for Google. A day earlier, chief technology officer Bjoern Goerke, another cloud expert based in the US, penned a blog post saying he’s leaving the company he joined as a student in 1988. Board member Bernd Leukert, a seasoned IT executive, left SAP in February.
McDermott said there’s “reignited passion” in the company and all positions are filled with people of great competence.
SAP said on Wednesday that uptake of its flagship S/4 Hana software slowed in the January-March period, with the company adding about 400 customers. It said it now has about 10 900 total users. The software allows businesses to run tasks on their own machines or in a cloud computing arrangement hosted by SAP or one of its partners. — Reported by Stefan Nicola, (c) 2019 Bloomberg LP