On Aug 14, 2014, we issued an updated research report on
). SAP is the world's leading independent software vendor with its
flagship ERP software. SAP HANA (High-Performance Analytic
Appliance) was launched in 2010 with a new class of solutions that
power the next generation of business applications.
The SAP HANA database is an in-memory database that combines
transactional data processing, analytical data processing, and
application logic processing functionality in its memory. At
present, SAP HANA forms the core of the company's business as it
seamlessly integrates all offerings by SAP into the cloud to give
its customers a competitive edge over its peers. The company's
cloud offerings powered by SAP HANA are being embraced by an
increasing number of clients as the HANA cloud subscription allows
the companies to leverage their businesses without any upfront
capital expenditure. Given its ease and benefits and that too at
reasonable costs, the rise in demand for SAP HANA is likely to
continue going forward.
For the past few quarters, SAP has been focused on growing its
cloud business to become one of the leading players in the
category. Moreover, the company follows an open ecosystem strategy,
which enables it to better leverage its innovation by extending it
to partners to drive additional customer value, based on their own
SAP reported strong second-quarter results with growth across
both top- and bottom- lines. The company has been witnessing strong
customer growth for the past few quarters. New customers included
key players like Telefonica Brasil, S.A. (
), Bombardier Recreational Products, Weir Minerals, eBay Inc. (
), BSH, Bosch and Siemens among others, which led to a brisk
expansion of the company's total customer base. Also, SAP has made
some strategic acquisitions to strengthen its cloud portfolio,
notable among which are Ariba, BusinessObjects, hybris,
SuccessFactors, Sybase and Syclo.
However, the company is highly exposed to the negative impact of
volatility in foreign currency as it establishes its operations
internationally. In the quarter, the company's cloud
subscriptions were impacted by 7 percentage points, whereas its
software and software-related service (SSRS) sub-segment revenue
had a 4 percentage point negative impact. Also, the ongoing
political and economical crisis especially in the Ukraine-Crimea
region can prove to be a headwind for its business going forward.
The company's professional services business has also been
witnessing continued weakness owing to the demand shift in the
consulting services business. SAP has undertaken restructuring to
meet these challenges, but the transformation is expected to impact
the results this year.
SAP currently carries a Zacks Rank #3 (Hold). Another
better-ranked stock that can be considered at the moment isProgress
Software Corporation (
) which sports a Zacks Rank #1 (Strong Buy).
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