Earlier this week, SAP (NYSE:SAP) announced its second quarter results for the year that surpassed market expectations. But the big news was all about its plans for Qualtrics.
SAP’s second quarter revenues grew 1% to €6.7 billion (~$7.42 billion), ahead of the market’s estimates of $7.3 billion. Adjusted profit increased 7% to €1.17 per share (~$1.29), surpassing the analyst estimates by 0.8%.
During the quarter, Cloud revenues grew 19% to €2 billion (~$1.8 billion). Software licenses revenue fell 4% to €3.7 million (~$3.3 million). Overall cloud and software revenue grew 3% to €5.7 billion (~$5.1 billion).
By segment, Applications, Technology & Support revenues grew 3% to €5.3 billion (~$4.8 billion). Qualtrics revenue grew 34% to €168 million (~$151.7 million). Concur revenues dropped 4% to €379 million (~$341.8 million). Its revenues were impacted as a result of the coronavirus crisis which led to a reduction in business travel. Revenue from SAP’s Services segment which includes digital transformation and the Intelligence team decreased 6% over the year to €796 million (~$717.8 million).
SAP continues to expect non-IFRS cloud revenue to remain at €8.3-€8.7 billion (~$9.05-$9.48 billion) and cloud and software revenue to remain at €23.4-€24 billion (~$27.6-$28.3 billion) for the year. It expects to end the year with revenues of €27.8-€28.5 billion.
SAP’s Cloud Growth
SAP S/4HANA continues to drive growth for the company. During the quarter, it added more than 500 S/4HANA customers, translating to 40% net new customers. It ended the quarter with a total S/4HANA customer count of more than 14,600. In a recent report, IDC also ranked S/4HANA as leader in cloud ERP applications.
As part of its cloud focus, SAP is providing additional options for customers to move to the cloud. Later this year, SAP will launch an integrated pre-configured public cloud suite that will expand beyond ERP. It will introduce a new private cloud offering for customers that require high levels of differentiation with a simpler commercial model. It will continue to leverage hyperscalers and system integrators to manage most of the cloud ERP infrastructure workloads.
In a surprising move, SAP announced plans to spin-off Qualtrics through an IPO. SAP had bought Qualtrics two years ago for $8 billion just before Qualtrics decided to list. Under SAP, Qualtrics had seen cloud growth of more than 40%. As part of the plan, SAP would remain a majority owner of Qualtrics.
Over the past few years, SAP has been building out its experience management (XM) ecosystem. Qualtrics has been key to that growth. SAP believes that by spinning out Qualtrics, it will give both Qualrtics and SAP the ability to grow this ecosystem. Qualtrics will be able to tap into SAP’s customer base while remaining independent enough to add talent, acquisitions, and customers outside of SAP.
Qualtrics will continue to be led by its founder Ryan Smith. While both companies are portraying the move as a win-win situation, analysts think otherwise. Some believe that the integration between the two did not really happen.
This was evident in a Jefferies report where an analyst says, “It leads us to question the degree of integration that was achieved, as well as future integration plans”.
Its stock is trading at $158.62 with a market capitalization of $195.1 billion. It hit a 52-week high of $165.38 earlier this week driven by its result announcement. The stock hit a 52-week low of $90.90 in March this year. It has had quite a stellar rise since.
Photo Credit: Paul Downey/Flickr.com
This segment is a part in the series : Cloud Stocks