Good results for SAP’s Q3 2018

Good results for SAP’s Q3 2018: full year outlook raised as cloud subscriptions surge, and results exceed analyst expectations

SAP announced over €6bn in third quarter 2018 revenue, up 8%, but operating profit was down by 6%. Interesting to see that 68% of SAP revenue is now repeating subscription/support based now – that smooths things out and boosts investor comfort. Operating profit was mainly impacted by higher “share-based compensation expenses” – plus operating cash flow took a hit. Software revenue was down 9% – why? “While SAP had a strong software revenue performance in APJ and Greater China, customers in the Americas and parts of EMEA were moving faster than expected to cloud and hybrid models”

Bill McDermott, SAP CEO, said “SAP is the fastest growing cloud company at scale in the enterprise software applications industry. Our growth drivers are firing on all cylinders – especially SAP C/4Hana and SAP S/4Hana as foundations of the Intelligent Enterprise.”

(C/4 Hana is the suite of customer relationship management products the company brought under one umbrella at this year’s Sapphire customer conference)

 SAP now claims 9,500 S/4HANA customers and expects “roughly half” of the 30,000 customers of SAP’s older ERP system ECC6 to have transferred to S/4 Hana by 2020. However, there is still a general feel that there aren’t many live reference customers we can find.

Interesting also to see DSAG (the huge German-speaking SAP User Group) survey that showed “for the most part, core processes are being left in ERP, with only 10 percent of the respondents moving them to the cloud”. Their message to SAP is ““We need fewer cloud-only developments and expect functional developments in terms of maintenance, not a new cloud subscription”. See more at https://www.dsag.de/pressemitteilungen/sap-users-call-standardized-data-models-and-extensive-integration-capabilities

What’s the conclusion? A good result with SAP progressing well with its cloud-based push, and signs that any customer reticence to move ahead with cloud or with S/4HANA may be declining.

Next week’s UKI SAP User Group will probably reveal more…

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