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SAP Q4 Preliminary Results Reflect Resilient Cloud Business

Zacks Equity Research
·4-min read

SAP SE SAP recently reported preliminary fourth-quarter 2020 and full year 2020 results. The company will release final fourth-quarter 2020 and full year 2020 results in detail on Jan 29.

Improving business activity during the fourth quarter aided recovery in Software licenses revenues. Management is optimistic regarding performance across North America and Europe, which witnessed robust cloud order entry and recovery in software licenses revenues, courtesy of solid uptick in SAP’s digital supply chain solutions.

The company notes that business performance improved sequentially despite coronavirus crisis induced headwinds and reintroduction of lockdowns during the fourth quarter.

Solid demand for e-commerce, Qualtrics, Business Technology Platform, and SuccessFactors Human Experience Management solutions and competitive deal wins in ERP cloud platform solutions contributed to top-line performance.

Further, lower spend on travel and virtualized events, and reduction in facility related costs accelerated margin expansion amid the challenging macro environment.

Nevertheless, Cloud revenues were impacted by lower pay-as-you-go transactional revenues, primarily related to Concur business travel, due to coronavirus crisis led shelter-in-place norms.

SAP SE Price and Consensus

SAP SE Price and Consensus
SAP SE Price and Consensus

SAP SE price-consensus-chart | SAP SE Quote

Q4 Preliminary Results at a Glance

Per the preliminary fourth-quarter results, SAP reported total revenues, on a non-IFRS basis, of €7.54 billion ($8.99 billion). The figure was down 6% year over year and down 2% at constant currency (cc).

The Zacks Consensus Estimate for revenues is currently pegged at $9.09 billion.

On a non-IFRS basis, Cloud and software business reported revenues of €6.58 billion, down 4% year over year (up 1% at cc).

Cloud revenues came in at €2.04 billion, up 7% year over year on a non-IFRS basis (up 13% at cc).

The company noted Software licenses revenues of €1.70 billion, down 15% (down 11% at cc) year over year.

Operating profit of €2.77 billion declined 3% on a year-over-year basis (up 3% at cc).

Sneak Peak into 2020 Performance

Per preliminary results, for 2020, SAP reported non-IFRS cloud revenues of €8.09 billion, up 15% year over year (up 18% at cc).

Non-IFRS cloud and software revenues came in at €23.23 billion, up 1% year over year (up 3% at cc).

Non-IFRS total revenues are projected in the range of €27.34 billion, down 1% year over year but up 1% at cc.

Non-IFRS operating profit increased by 1% year over year to €8.28 billion and up 4% (at cc).

2021 View

SAP expects to gain from “expedited shift to the cloud” in 2021. The company believes that the COVID-19 crisis will begin to recede on vaccine roll outs in turn leading to gradual improvement in demand environment in the second half of 2021.

The company projects cloud revenues in the range of €9.1 – 9.5 billion on a non-IFRS basis, up 13%-18% at cc.

Non-IFRS cloud and software revenues are envisioned in the range of €23.3 – 23.8 billion, flat to up 2% at cc. Non-IFRS operating profit is expected in €7.8 – 8.2 billion range, down 1% to 6% at cc.

Zacks Rank & Key Picks

Currently, SAP carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector worth considering are Apple AAPL, Alphabet GOOGL and NVIDIA NVDA. NVIDIA sports a Zacks Rank #1 (Strong Buy), while Apple and Alphabet carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The long-term earnings growth rate for Apple, Alphabet and NVIDIA is currently pegged at 11.5%, 16.93%, and 18.26%, respectively.

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