Dusseldorf The Corona epidemic is clouding SAP’s growth prospects: In the first quarter, the German software manufacturer’s business performed significantly worse than forecast at the beginning of the year. Due to the crisis, customers have postponed “a significant number of new contracts”, which is reflected in a significant drop in license revenues, according to a statement released ad hoc on Wednesday evening by the software manufacturer.
From the beginning of January to the end of March, the software business shrank by 31 percent year-on-year to EUR 0.45 billion. The fact that sales rose nonetheless by seven percent to 6.52 billion euros was due to the stability of its cloud offerings: Revenue grew by 29 percent to 2.01 billion euros – a considerable part of the income comes from regular user fees.
SAP assumes that the situation will worsen “into the second quarter” before gradually improving in the third and fourth quarters, “if countries start their economies again and the initial restrictions on the population are lifted”. In view of this “difficult market environment”, the software manufacturer has lowered the forecast for 2020, although all figures are only approximate values due to the great uncertainty.
Sales are expected to be in the range of 27.8 and 28.5 billion euros, which corresponds to an increase of one to three percent – previously the group had assumed at least 29.2 billion euros. Management reports a range of 8.1 to 8.7 billion euros for the operating result instead of the previous 8.9 to 9.3 billion euros. “Our updated outlook shows that SAP remains healthy and stable even in this difficult environment,” said CFO Luka Mucic.
The aftermath of the pandemic has hit the IT and telecommunications market hard. Market researcher IDC expects that this year’s expenditure will decrease by 2.7 percent currency-adjusted – two months ago, the experts had assumed an increase of 5.1 percent. IDC justified the revision, saying that many organizations are forced to make emergency plans and cut costs in the short term because of the collapsing business.
SAP is still financially sound
The areas are affected to different extents: According to the forecast, spending on notebooks, smartphones and accessories will decrease by 8.8 percent, while sales of software should increase by 2 percent are in demand. Large projects that are often necessary for the introduction of SAP systems are currently in question.
Despite the crisis, SAP is financially sound. The operating result doubled to 1.21 billion euros, however due to special effects. In the prior-year period, the software manufacturer had booked substantial restructuring costs and paid high share-based payments. However, profitability suffered: the adjusted operating margin, which investors pay close attention to, fell to 22.7 percent. The Dax group will publish details on April 21.
The brief message already shows that fundamental changes are pending again at SAP. The management announced Christian Klein and Jennifer Morgan cut costs. The company wants to hire fewer new employees and reduce short-term expenditures, such as fewer business trips and virtual events – this is how the Sapphire Now customer conference is canceled. The management initially did not announce a new restructuring program.
SAP has also developed measures to stabilize the software business. So there is a strategy “that enable virtual sales and remote implementations”. In other words, both sales and product launches, in which direct contacts have previously played an important role, should now take place digitally.
After the exchange, the SAP share was initially positive. After the all-time high of just under 130 euros in February, the price fell significantly, to 88 euros in the meantime. Most recently, he recovered to 105 euros. A number of financial analysts have revised their price targets downwards in the face of the corona crisis, but most still recommend buying the paper.
Before the publication of the quarterly figures, the Swiss investment bank UBS referred to the high recurring revenues that come from maintenance and the cloud business – these bring stability. In addition, the bank expects demand for the core product S / 4 Hana to rise again as soon as the economy has overcome the crisis.
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