SAP Is Verticalizing SAP S4/HANA

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Last week, SAP (NYSE:SAP) announced its first quarter results for the year that failed to impress the market. But there is a silver lining to its results – its cloud business growth.

SAP’s Financials

SAP’s first quarter revenues grew 7% to €6.522 billion (~$7.19 billion), marginally ahead of the market’s estimates of $7.116 billion. Adjusted profit fell 5% to €0.85 per share (~$0.94), missing the analyst estimates by 7%.

During the quarter, Cloud revenues grew 29% over the year to €2.01 billion (~$2.2 billion). Software licenses revenue fell 31% to €451 million (~$491 million). Overall cloud and software revenue grew 7% to €5.4 billion (~$5.9 billion).

By segment, Applications, Technology & Services revenues grew 5% to €4.99 billion (~$5.89 billion). SAP S/4HANA added 300 customers in the quarter and now has over 14,100 customers. Qualtrics revenue grew 82% over the year to €161 million (~$190 million). Concur revenues grew 14% to €428 million (~$505 million). SAP’s Services segment which includes digital transformation and the Intelligence team saw revenues grow 5% over the year to €851 million (~$1 billion).

Based on the current economic conditions, SAP revised its outlook downwards. It now expects non-IFRS cloud revenue to be €8.3-€8.7 billion (~$9.05-$9.48 billion) and cloud and software revenue to be €23.4-€24 billion (~$27.6-$28.3 billion) for the year. It expects to end the year with revenues of $30.3-$31.1 billion.

SAP’s Cloud Growth

SAP S/4HANA remains the core area of growth for SAP and it believes that the offering is even more critical under the current crisis. SAP S/4HANA has helped transform organizations into intelligent organizations which can continue operations without disruption. It has automated processes and made them more intelligent and remote across all functions. During the quarter, it rolled out several offerings to help customers deal with the present conditions involving sourcing challenges, business travel disruption and managing remote work environments.

Some of the new offerings released recently include the release of Planning as a service with the SAP Integrated Business Planning for Supply Chain solution. The capability will allow SAP HANA warehouse customers to predict the demand and pipeline almost real-time to dynamically adjust the supply chain. It is working together with qualified channel partners to enable scenario planning to evaluate the supply chain impact, supply options, and financial implications. Customers will be able to simulate demand shifts and impact of production rate changes to eliminate bottlenecks and build resilience.

To help buyers get better visibility into the health of their suppliers and analyze the overall risk associated with potential disruptions in their supply chains, SAP also created Qualtrics Supply Continuity Pulse. The preconfigured solution combines the procurement and experience management expertise of SAP Ariba and Qualtrics. It allows buyers to issue a questionnaire to determine supplier feedback that can help them identify potential supply constraints, delivery timelines, and areas to optimize business continuity and recovery.

SAP is also responding to the market demands of building a vertical-focused S4/HANA offering. For instance, it recently tied up with Proaxia Automotive Solutions AG to focus on the vehicle and heavy equipment dealer business and the workshop service business. As part of the agreement, the two companies will work together to accelerate the availability of SAP S/4 HANA’s intelligent enterprise solution for automotive retail. Together, they will build an offering that will provide an integrated vehicle sales and service management solution to deliver data-driven insights for dealerships.

Similarly, it has partnered with Accenture and collaborated with other leading global oil and gas companies such as ConocoPhillips and Shell to deliver an intelligent solution that is focused on the oil and gas segment. SAP S/4HANA Cloud for upstream oil and gas is a flexible solution that provides customers with a holistic view of the enterprise. It can help the oil and gas companies reduce total cost of ownership and operational costs, while creating new revenue opportunities.

Its stock is trading at $119.32 with a market capitalization of $146.13 billion. It had climbed to a 52-week high of $140.67 earlier this year. The stock had fallen to a 52-week low of $90.90 in March during the market turmoil.

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Photo credit: Thomas Schlosser/Flickr.com.