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SAP Posts Robust Q2 Results on Solid Cloud Bookings - Analyst Blog

SAP SESAP reported second-quarter non-IFRS earnings of €0.80 per share, increasing from the year-ago quarter tally of €0.79 per share in Eurozone currency.

SAP's impressive bottom-line performance came on the back of strong revenue growth. SAP HANA's exponential market traction (with 530 new SAP S/4HANA customers gained in the second quarter) coupled with growth in business network and cloud bookings drove robust earnings in the second quarter.

Non-IFRS total revenue aggregating €5 billion ($5.5 billion) was up 19.7% year over year. The quarterly results benefited largely from new cloud bookings, which, considered as the key measure for SAP's sales growth, shot up 162%.

The company's non-IFRS cloud subscriptions and support revenues grew 129% in the second quarter; while non-IFRS cloud and software revenue grew 21%. This apart, SAP's business network portfolio also recorded 194% year-over-year growth, indicating demand for its efficient electronic commerce network among multiple companies.

SAP also reported first-quarter 2015 non-IFRS operating profit of €1.4 billion ($1.5 billion), an increase of 12.8% on a year-over-year basis.

Total Revenue by Regions

Similar to the first quarter, the Europe, the Middle East and Africa (''EMEA'') region remained a strong performer in the second quarter too, mainly driven by excellent Non-IFRS cloud subscriptions, support revenue growth and new cloud bookings.

While Non-IFRS cloud subscriptions and support revenue recorded a 94% surge, new cloud bookings witnessed astounding triple-digit growth. Middle East, Germany, France and the UK emerged as clear winners with robust growth in cloud and software platforms.

SAP's performance in the Asia Pacific Japan (''APJ'') region was also remarkable, attributable to strong recovery in Japan's cloud and software business. In this region, Non-IFRS cloud subscriptions and support revenues grew a staggering 138%. On the other hand, non-IFRS cloud and software revenues too, rose 19%.

The Americas region posted double-digit growth, with a notable improvement of 141% in cloud subscriptions and support revenues, and tripling of cloud bookings, mainly led by exceptional performance in North America. In this region, non-IFRS cloud and software revenues grew 36%. Despite solid cloud and software business growth in the U.S., Latin American region witnessed lackluster business, mainly on account of unfavorable macro-economic issues.

Liquidity and Cash Flow

For six months ended Jun 30, 2015, SAP's operating cash flow advanced 7.8% to €2.78 billion ($3.1 billion); while free cash flow increased 10.1% to €2.5 billion ($2.8 billion), both on a year-over-year basis.

As on Jun 30, 2015, SAP had total group liquidity (including cash and cash equivalents and current investments) of €4.18 billion ($4.64 billion).

2015 Guidance Reiterated

Based on rapid market traction of the cloud business, SAP management has reiterated its 2015 outlook, with non-IFRS cloud subscriptions and support revenue in a range of €1.95-€2.05 billion in terms of constant currency. The company's Concur and Fieldglass acquisition are expected to contribute 50% of this growth.

Also, SAP has not changed its projection range of 8-10% for cloud & software revenues on a constant currency basis in this year. Similarly, non-IFRS operating profit is also expected within the prior-year range of €5.6-€5.9 billion for 2015.

However, if currency exchange rate remains at par with Jun-2015 average level for the rest of the year, then SAP expects 5-8% points of currency benefits on operating profit and cloud & software growth for the third quarter of 2015. If the exchange rate remains at this level for full-year too, then the company expects currency benefits of 6-9% points for cloud and software gain and 7-10% percentage points for operating profit gain.

Our Take

SAP has established a strong dominance over three of the most critical client demand areas, namely efficient customer engagement, human capital management and interconnected commerce network that, in turn, drive its growth. We believe the Zacks Rank #2 (Buy) stock will continue to experience a surge in its SAP HANA customers (which has already surpassed the 7200 mark), going forward.

In order to maintain its competitive edge, the company diligently upgrades its cloud platforms, and this is likely to attract more clients. Apart from this, SAP's business network, which ranks among the best in the entire world, is also expected to supplement its top-line growth in the quarters ahead.

Better-ranked stocks in the industry include Manhattan Associates, Inc. MANH , Nuance Communications, Inc. NUAN and Simulations Plus, Inc. SLP . All three stocks sport a Zacks Rank #1 (Strong Buy).

Note: €1= $1.1058 (average for the period Apr 1, 2015 - Jun 30, 2015)

€1= $1.1170 (average for the period Jan 1, 2015 - Jun 30, 2015)

€1= $1.109 (on Jun 30, 2015)

1 SAP ADR= 1 Ordinary Share

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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