The strong results from technology bellwethers Oracle and IBM set the tone for high expectations. Despite double-digit revenue growth and profit growth, SAP (NYSE:SAP) missed analyst estimates. However, it says it is undeterred from achieving its goal of $20 billion annual revenue by 2015. Let’s take a closer look.
SAP last week reported first quarter revenue of €3.024 billion ($4.47 billion), up 21% and in line with analyst estimates. Software and software-related service revenue increased 20% to €2.33 billion ($3.45 billion), missing the analyst estimate of €2.46 billion. Software revenue grew 26% to €583 million ($862.5 billion). Net income increased 4% to €403 million ($596 million) or €0.34 per share from €387 million ($572 million) or €0.33 per share last year. Non-IFRS operating profit increased 26% to €779 million ($1.15 billion) but missed the analyst estimate of €833 million. Profit was impacted by the €112 million acquisition related costs related to SAP’s $5.8 billion Sybase acquisition last year.
Software and related services sales in the Americas grew 29%. Asia-Pacific was up 28%, while Europe, the Middle East and Africa gained 13%. Growth in Germany, at 7%, was the weakest. SAP ended the quarter with liquidity of €4.49 billion ($6.64 billion) and debt of €3.85 billion, of which €3.25 billion resulted from the proceeds of bond and private placement transactions.
Following the disappointing results, SAP shares hit a one-month low but rebounded over the week. Jonathan Crozier, an analyst at WestLB AG in London, said on Bloomberg that
“The market was in general expecting higher revenue numbers and in particular in terms of subscriptions, which were flat year-on-year. What we’re seeing is 50 percent disappointment with the results and 50 percent profit taking. The shares were ready for any excuse to take profits.”
“I believe SAP’s disappointing performance is due to its strong position in Europe and the Middle East, where growth is limited.”
Finally, Eric Savitz on Forbes reports that SAP sees three major growth drivers for its business: cloud computing, business mobility and in-memory computing. The Sybase acquisition is expected to accelerate SAP’s reach in mobile platforms and the realization of its in-memory computing vision. In-memory computing or HANA (High-Speed Analytical Appliance) allows companies to store data in the main memory which in turn allows to read 10,000 times faster than standard disks. In a recent interview SAP co-CEO Jim Hagemann Snabe, in the interview said that HANA servers cost less than 10% of large-scale disk system and outperform their pricier predecessors by as much as twentyfold. He expects HANA to drive “triple digit millions” of euros in revenue this year. He also thinks the cloud and mobile devices combined will boost the number of users on SAP systems by more than 10 times, from under 100 million now to a billion.
SAP expects to reach $20 billion in annual revenue by 2015. Its annual revenue in 2010 was €12.9 billion ($17.6 billion). SAP reiterated its outlook for the full year. It expects full-year 2011 non-IFRS software and software-related service revenue to increase in a range of 10%–14% from €9.87 billion in 2010. The company expects full-year 2011 non-IFRS operating profit to be in a range of €4.45 billion–€4.65 billion. Its stock is trading around $65 with market cap of about $77 billion. It hit a 52-week high of $62.23 on March 4 and a 52-week low of $40.95 on May 25, 2010.