According to market reports, the growth in the global ERP and CRM markets is driven by the shift of the industry to the Cloud and Software-as-a-Solution-based offerings. According to a Gartner report, more than 40% of the sales last year in these two markets were SaaS-based. ERP market leader SAP is relying on leveraging their Cloud and HANA offerings to continue to dig deeper into the market.
SAP’s (NYSE: SAP) second quarter revenues grew 5% over the year to €4.15 billion (~$5.66 billion), falling short of market estimates of $5.77 billion. EPS of €0.79 (~$1.08) grew 10% over the year and was ahead of the Street’s projections of $0.88 for the quarter. SAP’s growth was driven by the continued adoption of their Cloud and HANA offerings. They now have more than 3,600 HANA customers and over 1,200 SAP HANA Business Suite customers.
By segment, support revenues grew 6% to €3.24 billion (~$4.41 billion) and revenues from software and related subscriptions grew 8% to €3.48 billion (~$4.74 billion). Cloud subscriptions and support revenues grew 39% over the year to €0.24 billion (~$0.33 billion).
SAP expects to end the year with cloud subscription and support revenues of €1.00 billion–€1.05 billion (~$1.37-$1.44 billion), raising their guidance from €0.95 billion-€1.00 billion (~$1.30-$1.37 billion). They projected the year’s operating profit at €5.8 billion-€6.0 billion (~$7.92-$8.20 billion).
SAP’s Run Simple Strategy
SAP remains focused on enhancing their business through cloud and HANA-related offerings. Recently, they announced a business strategy of “Run simple”. They plan to use cloud and SAP HANA to help simplify their customer experience. As part of that, they recently included the SAP Fiori user experience within SAP software licenses. SAP Fiori is a collection of apps that uses latest design principles to deliver an improved user experience. It successfully integrates features of personalization, responsiveness, and simplicity across multiple devices to deliver the experience.
As part of this strategy, SAP in the last quarter released Simple Finance, which provides users with an end-to-end financial management solution as a comprehensive package. The solution features capabilities like simplifying and automating the intercompany reconciliations, integrating financial planning with reporting, improved cash management and reduces the data points generated as part of the financial processing.
SAP is also deploying the strategy in their customer relationship offering. Their hybrid omni-channel e-commerce platform and SAP cloud for sales are integrating processes like customer insight, targeted marketing, sales promotion, commerce, and service.
They also realize the need of simple processes especially for the SMB segment and recently launched a new division focused on providing solutions to the smaller firms.
SAP’s stock is trading at $76.88 with a market capitalization of $91.8 billion. It touched a 52-week high of $87.42 in December 2013.