SAP to Slash Workforce & Sell Qualtrics to Boost Profitability
SAP SE SAP recently announced that it plans to conduct a targeted restructuring program in certain areas of the company alongside its fourth-quarter 2022 results. The goal of this program is to better align its operating models and go-to-market approach with its accelerated cloud transformation, as well as to strengthen its core business and improve overall process efficiency.
The restructuring will affect around 2.5% of SAP's employees, with restructuring costs of €250 million to €300 million expected to be recognized in the first quarter of 2023. The program is expected to provide “moderate” cost benefits in 2023, noted SAP.
Other tech companies such as Microsoft, Meta Platform and Amazon have also announced layoffs amid a challenging macroeconomic environment. Microsoft is reportedly cutting 5% of its workforce, Meta Platform is cutting 13% of its workforce and Amazon is letting go of more than 18,000 employees.
SAP SE Price and Consensus
SAP SE price-consensus-chart | SAP SE Quote
As of 2024, the restructuring is expected to generate €300-€350 million in annual cost savings for SAP, which will be directed toward investments in strategic growth areas.
Additionally, the company is mulling to sell its stake in Qualtrics, which aligns with its strategy to streamline its portfolio and focus on its core cloud growth and profitability. The potential sale would allow SAP to focus on its core cloud growth and profitability while allowing Qualtrics to continue its growth and leadership in the experience management category.
The company delivered fourth-quarter 2022 non-IFRS earnings of €1 per share, down 46% from the year-ago quarter’s levels. The downside was caused by tougher year-over-year comparisons pertaining to the contribution from Sapphire Ventures.
Driven by strength in the cloud business, SAP reported total revenues, on a non-IFRS basis, of €8.436 billion, up 6% year over year (up 1% at constant currency or cc).
For 2023, SAP anticipates cloud revenues in the range of €15.3-€15.7 billion, suggesting an increase of 22-25% at cc. Cloud and software revenues are now expected to be between €28.2 billion and €28.7 billion, implying a 6-8% rise at cc.
Recently, SAP and Lockheed Martin announced an expansion of their strategic relationship to enhance Lockheed Martin's OneLM Transformation Program (1LMX) using SAP's RISE with SAP solution for enterprise cloud capabilities. Also, the SAP Business Technology Platform will be used for boosting innovation and SAP Analytics Cloud for data management and analytics.
SAP is an independent software vendor and a leading provider of enterprise resource planning software. Its solutions are designed to cater to the needs of organizations ranging from small and medium businesses to large global enterprises.
SAP currently carries a Zacks Rank #3 (Hold). Shares of the company have lost 6.7% compared with the sub-industry’s decline of 17.1% in the past year.
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Stocks to Consider
Some better-ranked stocks from the broader technology space are Arista Networks ANET, Jabil JBL and Calix CALX. Jabil and Calix currently sport a Zacks Rank #1 (Strong Buy), whereas Arista Networks holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks.
The Zacks Consensus Estimate for Arista Networks 2022 earnings is pegged at $4.38 per share, rising 0.2 in the past 60 days. The long-term earnings growth rate is anticipated to be 17.5%.
Arista Networks’ earnings beat the Zacks Consensus Estimate in the last four quarters, the average being 12.7%. Shares of ANET have increased 5.1% in the past year.
The Zacks Consensus Estimate for Jabil’s 2023 earnings is pegged at $8.37 per share, rising 2.3% in the past 60 days. The long-term earnings growth rate is anticipated to be 12%.
Jabil’s earnings beat the Zacks Consensus Estimate in all the last four quarters, the average being 8.8%. Shares of JBL have increased 34.5% in the past year.
The Zacks Consensus Estimate for Calix’s 2022 earnings is pegged at $1.28 per share, rising 1.5% in the past 60 days.
Calix’s earnings beat the Zacks Consensus Estimate in all the last four quarters, the average being 19%. Shares of CALX have soared 39.8% in the past year.
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