SAP SE SAP delivered first-quarter 2023 non-IFRS earnings of €1.08 ($1.16) per share, increasing 8% from the year-ago quarter’s levels.
Driven by strength in the cloud business, SAP reported total revenues, on a non-IFRS basis of €7.441 billion ($7.983 billion), increasing 10% year over year (up 9% at constant currency or cc).
Following the announcement, shares are up 3.7% in the pre-market trading on Apr 21.
SAP SE Price, Consensus and EPS Surprise
SAP SE Price, Consensus and EPS Surprise
SAP SE price-consensus-eps-surprise-chart | SAP SE Quote
Cloud Results
Current cloud backlog — a key indicator of go-to-market success in cloud business — increased 25% (up 25% at cc) to €11.15 billion.
On a non-IFRS basis, the Cloud and software business (85.5% of total revenues) registered revenues of €6.358 billion, up 10% year over year (up 8% at cc).
Cloud revenues were €3.18 billion, up 24% year over year on a non-IFRS basis (up 22% at cc). The company’s cloud business gained momentum across China, Japan, Mexico, the Netherlands, Switzerland and the United States.
Software licenses and support revenues totaled €3.18 billion, which decreased 2% (down 2% at cc) year over year. Non-IFRS software license revenues of €276 million declined 13% (down 13% at cc) year over year. The downtick was caused by customers shifting to the cloud and choosing the company’s RISE with SAP solution.
On a non-IFRS basis, cloud revenues related to Software as a Service increased 22% at cc to €2.496 billion. Cloud revenues related to the Platform as a Service rose 45% at cc and year over year to €482 million. Cloud revenues related to Infrastructure as a Service declined 13% at cc and year over year to €200 million.
The Services business (14.5% of total revenues) delivered revenues of €1.08 billion, up 12% from the year-ago quarter’s levels (up 11% at cc).
The company previously had two reportable segments — Applications, Technology & Services (AT&S) and Qualtrics. However, In March, the company announced that it has agreed to sell its entire stake in Qualtrics as part of the acquisition of Qualtrics by funds associated with Silver Lake and Canada Pension Plan Investment Board (CPP Investments). SAP’s entire stake, which corresponds to 423 million shares of Qualtrics International, will be acquired at a price of $7.7 billion.
The company now has AT&S as its only reportable segment and will consider the Qualtrics segment as discontinued operations. AT&S’ revenues were up 9% year over year (up 8% at cc) to €7.14 billion owing to solid cloud revenue growth due to rising demand for SAP S/4HANA and SAP’s Business Technology Platform.
Expanding Clientele Bodes Well
The Rise with SAP solution was adopted by clients, including BMW Group, DOLCE & GABBANA, GAMA, GlasfaserPlus, The Government of Manitoba, Henkel, KANSAI PAINT CO, Lingong Heavy Machinery, MLS, NEC Networks & System Integration Corporation, Pastificio Rana, Sempra Infrastructure, Sodexo BRS, Sri Intellectual, Thales Defense & Security Inc, VEM Conveniência, and Zagis.
More companies have begun deploying the S/4HANA solution partly or entirely in the cloud. SAP S/4HANA Cloud revenues increased 77% (up 75% at cc) year over year to €716 million. SAP S/4HANA’s current cloud backlog was up 78% (up 79% at cc) year over year.
In the reported quarter, Advanced Micro Devices, Air India, Aurobay, FLYING WHALES, Hengan Group, JFE Steel Corporation, Ourofino Agrociência, REPETCO Innovations and Shinsegae International went live on SAP S/4HANA Cloud.
SAP’s clientele continues to expand with the addition of A.S. Watson, Berlin Hyp, Martens, Envision Energy, Grupo Estrella Blanca, HCLTech, Hitachi HighTech Corporation, NTT DATA Business Solutions, Lee Kum Kee Sauce Group, SMA Solar Technology and Whirlpool Corporation, which adopted SAP’s various solutions during the reported quarter.
On Mar 22, 2023, SAP announced the launch of GROW with SAP which will help midsize companies to adopt cloud enterprise resource planning solutions.
On Mar 8, 2023, SAP announced the next generation of its SAP Data Warehouse Cloud solution — SAP Datasphere. The solution is designed to aid data professionals in delivering quick access to vital business data across the organization's data landscape without compromising business context and logic.
Margin Details
Non-IFRS gross margin of 72.9% decreased 20 basis points (bps) from the year-ago quarter’s figure.
SAP reported non-IFRS operating expenses of €5.56 billion, up 9.2% from the year-ago quarter’s level (up 8% at cc).
Non-IFRS operating profit of €1.875 billion increased 12% on a year-over-year basis (up 12% at cc).
Non-IFRS operating margin of 25.2% expanded 40 bps on a year-over-year basis. At cc, the figure came in at 25.6% and increased to 80 bps.
Balance Sheet & Cash Flow
As of Mar 31, 2023, SAP had cash and cash equivalents of €9.890 billion compared with €9.006 billion as of Dec 31, 2022.
The company generated €2.311 billion in operating cash in the reported quarter compared with €2.048 billion in the prior quarter.
The free cash flow was €1.955 billion compared with the previous quarter’s figure of €1.805 billion.
2023 Outlook
The company revised its outlook to factor in the sale of Qualtrics. For 2023, SAP anticipates cloud revenues from continuing operations following the divestiture of Qualtrics in the range of €14-€14.4 billion suggesting an increase of 23-26% at cc.
Cloud and software revenues are now expected to be between €26.9 billion and €27.4 billion, implying a 6-8% rise at cc.
The company continues to expect non-IFRS operating profit in the range of €8.6-€8.9 billion, indicating a rise of 8-11% at cc. Free cash flow is expected to be nearly €4.9 billion.
The company plans to conduct a targeted restructuring program in certain areas of the company. The goal of this program is to better focus on its strategic growth and accelerated cloud transformation.
The program will cost €250 million to €300 million, of which €255 million has already been recorded in the first quarter of 2023. The program is expected to provide moderate cost benefits in 2023.
For 2024, the restructuring program is expected to generate €300-€350 million in annual cost savings.
Zacks Rank & Other Stocks to Consider
SAP currently carries a Zacks Rank #2 (Buy).
Some other top-ranked stocks in the broader technology space are Arista Networks ANET, Asure Software ASUR and Salesforce CRM. Asure Software and Salesforce currently sport a Zacks Rank #1 (Strong Buy), whereas Arista Networks carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Arista Networks’ 2023 earnings has increased 1.2% in the past 60 days to $5.83 per share. The long-term earnings growth rate is anticipated to be 14.2%.
Arista Networks’ earnings beat the Zacks Consensus Estimate in the last four quarters, the average being 14.2%. Shares of ANET have increased 32% in the past year.
The Zacks Consensus Estimate for Asure Software’s 2023 earnings has increased 25% in the past 60 days to 35 cents per share. The long-term earnings growth rate is anticipated to be 25%.
Asure Software’s earnings beat the Zacks Consensus Estimate in all the last four quarters, the average being 445.8%. Shares of ASUR have increased 176.1% in the past year.
The Zacks Consensus Estimate for Salesforce’s 2023 earnings has increased 21.5% in the past 60 days to $7.11 per share. The long-term earnings growth rate is anticipated to be 16.8%.
Salesforce’s earnings beat the Zacks Consensus Estimate in the last four quarters, the average surprise being 15.6%. Shares of the company have increased 15.2% in the past year.
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