Why the Downgrade?
SAP has been witnessing downward estimate revisions in spite of delivering a strong third-quarter 2014 with growth across both top and bottom lines.
Recent acquisitions of the company and its transition toward the cloud-based software technology are expected to weigh on its margins, at least in the near term. Presently, SAP has been receiving a major portion of its revenues from its on-premise products. The ongoing shift toward cloud-based technology limits the company's visibility in future. SAP's cloud based platform, SAP HANA, has been performing well. Moreover, the company's persistent focus on establishing itself as a cloud-based software technology was reinforced by its announcement of the $8.3 billion acquisition of Concur Technologies, Inc ( CNQR ).
However, considering the costs for shifting towards cloud and integration related costs, the company downgraded its fiscal 2014 guidance for operating profit to a range of €5.6 - €5.8 billion at constant currency, compared with the earlier range of €5.8 - €6.0 billion.
Moreover, currency volatility in the first half of fiscal 2014 has produced an unfavorable impact on SAP's revenues. In the third quarter, currency translations had a negative impact of 3% and management expects another 3% impact in the fourth quarter of 2014 as well.
All these factors triggered a downtrend in the Zacks Consensus Estimate. The downward estimate revisions over the last 30 days caused a 3.6% decline in the Zacks Consensus Estimate for 2014 to $3.58 per share, whereas for 2015, the Zacks Consensus Estimate slipped 7.4% to $3.93 per share.
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