SAP sales rise again as software, cloud spending grows

Bloomberg

SAP SE’s sales topped analysts’ estimates for the fourth straight quarter, as business software spending grew, though the costs of transitioning to a web-delivered model weighed on profitability.
First-quarter revenue rose 12 percent to 5.29 billion euros ($5.7 billion), SAP reported, compared with the 5.16 billion-euro estimate of analysts surveyed by Bloomberg. Operating profit, excluding share-based compensation, amortization and other charges, was 1.2 billion euros, compared with the average estimate of 1.23 billion euros.
However, the Walldorf, Germany-based company’s profit margin was crimped by higher stock compensation costs due to hiring and a loftier share price, Chief Financial Officer Luka Mucic said in an interview with Bloomberg Television. “This will reverse itself in the coming quarters.”
Private cloud installations for customers also cut into profitability. “As it becomes a bigger portion of the overall pie it will have a dampening effect,” said Mucic. Shares of SAP were up 0.77 percent to 93.22 euros at 9:11 a.m. in Frankfurt. SAP’s stock has been on a run — the shares were up 12 percent this year through April 24, versus a 7 percent return for Germany’s DAX index.
SAP is “firing on all cylinders,” Knut Woller, an analyst at Baader Bank in Germany, said in a note to clients, adding that despite the fall in operating margins, SAP should be able to expand operating profit over the rest of the year. SAP posted an operating margin of 22.7 percent, compared with the 23.5 percent estimate of Woller. Chief Executive Officer Bill McDermott is jousting with rivals Oracle Corp. and Salesforce.com Inc. for software spending as businesses upgrade systems that run sales, manufacturing and HR from their data centers or via the internet.