SAP (
SAP
) recently announced its Q4 2010 earnings and highlighted that
it has been focusing on innovation to grow its top line and
profitability, which helped in generating strong sales growth.
Management stressed on the fact that its customer-focused strategy
to provide solutions to customers on-premise, on-demand and
on-device has started to find broad market acceptance. SAP mainly
competes with Oracle (
ORCL
), Microsoft (
MSFT
), Salesforce.com (
CRM
) and IBM (
IBM
) in the applications software market, which consists of
various applications like Enterprise Resource Planning (ERP),
Customer Relationship Management (
CRM
) and Business Intelligence (BI) to name a few.
On-premise and on-demand are two modes of product
implementations. In on-premise product implementation, the software
is installed onsite while in on-demand or software as a service
(SaaS), the software is installed remotely on third-party servers,
or the cloud.
On-device is the main innovation that SAP talks about where
SAP has developed the capability of delivering applications'
access on mobile devices (See
SAP Will Leverage Sybase To Deliver Business Apps on
Smartphones
). On-demand and on-device are higher growth areas for SAP than its
core businesses which are expected to grow at high single digits.
We have a
$64.85 Trefis price estimate for SAP stock
, which is about 10% higher than the current market price.
SAP tries to compete in the applications software
market
Among its applications, ERP software is the most valuable
business for SAP and accounts for around 37% of our estimate for
SAP stock. Historically, SAP's market share in ERP software
business has declined from around 29% in 2005 to around 27% in 2010
as per our estimate, and we expect this decline to continue to
around 25% by the end of Trefis forecast period.
The company has made some progress in tapping high growth areas
of on-demand and on-device over the last few months. According to
management, its on-demand product Business ByDesign has started to
gain traction, and the company was able to more than double its
Business ByDesign customers from around 100 in mid-2010 to 250 by
the end of 2010. SAPalso mentioned that it is looking to increase
this number to around 1,000 by the end of 2011. ((ref:1))
A few weeks back, we discussed that it will be critical for SAP
to leverage the fast growing SaaS market that it could achieve
through Business ByDesign (See
Leveraging SaaS Market Growth Critical For SAP
Stock
). Another product that SAP has brought is through the introduction
of HANA (High Performance Analytic Appliance), which speeds up data
storage and retrieval to unprecedented levels (See SAP Widening its
Lead in Business Intelligence for more details on HANA) by using in
memory technology.
Can these new products actually result in faster revenue growth
and higher profitability?
If SAP successfully taps into these newer growth markets, it's
stock could get a boost. For example, there could be an upside of
10% to our estimate for SAP stock, if its ERP market share
increases to around 30% by the end of Trefis forecast period,
instead of the decline that we forecast.
See complete $64.85 Trefis Price estimate for
SAP stock
.