SAP vs. Salesforce / C/4Hana / C/4 Hana

SAP share price plummets – even the software giant has to overturn its annual targets

SAP has to overturn its annual targets: SAP was one of the companies in Germany that has coped better with the current corona crisis. Now, on Sunday evening, the Group had to revise its targets for fiscal year 2020 once again. In this move, SAP also cancelled its medium-term goals for 2023.

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The press conference (link leads to the quarterly report) for the third quarter, which was surprisingly postponed to the Sunday evening of October 25, 2020, plunges SAP into a shock of figures. The markets and investors immediately acknowledge this. The Walldorf-based company started the trading day on Monday, October 26, 2020, with a significant loss of 15%. The share did not recover from this news over the day. Shortly before the close of trading (October 26, 2020), the share was down 23%.

So where does this considerable slump at SAP come from?

On Saturday, the Board of Management corrected the operating result to 8.1 billion Euro (previously: 8.7) and sales for the full year to 27.2 billion Euro (previously: 28.5). For investors, it is now likely that total sales will stagnate or even decline compared to the previous year. This is because the previous year’s sales were 27.6 billion Euro. The return on investment will also be less lavish due to the operating result now expected.

In 2018, SAP acquired Qualtrics, for example, at a high price. emarsys was announced as the latest acquisition on October 1, 2020.

The DSAG (German SAP User Group) also reports a postponement of investment. This means that many companies that are members of the DSAG will postpone the S/4HANA migration, which may well cause a dent in SAP’s balance sheet.

SAP must therefore overturn its annual targets

In its financial report, SAP explains that the acquired subsidiary Concur is the reason for the decline in revenues and the capping of the annual figures. Concur offers solutions for all aspects of travel and expense management. Concur’s revenues in the third quarter alone were down nearly 15% year-on-year. The reason is the corona crisis. As a result, there is significantly less business travel. The lower, volume-dependent transaction revenues will not be able to compensate for the missing revenues in the remaining year.

Light at the end of the tunnel?

However, SAP boss Christian Klein sees a positive trend for SAP. Here, a faster migration of SAP customers to the cloud can be observed. This trend is expected to increase the number of cloud customers to 22 billion by 2025. SAP wants to invest a high triple-digit million euro amount for this. With the cloud, however, it is important to note that cloud contracts are only as lucrative as software licenses with high one-off payments when they have a longer term. This trend is expected to significantly slow down the growth of the operating margin until at least 2023.

Conclusion on “SAP must overturn its annual targets”:

Corona also makes the giants of the industry shake. SAP must certainly think about how this hole can be corrected. The cloud business must be seen in the long term. Unfortunately, most investors are “short-sighted” – in other words: short-term – on the move.

The SAP cloud business still requires some convictions and investments that may be lacking elsewhere (e.g. in sales and marketing). This is shown by the above-mentioned DSAG report that investments in the S/4HANA migration will only take place later.

Are the acquisitions putting SAP in more trouble than expected?

That’s why the question remains for us as to whether the recent acquisition of emarsys can be a lever to make SAP customers more loyal. At the moment, focusing on the core business is probably more important than making further acquisitions. However lucrative they may be.

Can the SAP CRM business help fill this gap?

It will be difficult. After all, we all know how long integrations (e.g. emarsys’) take technically. Until the SAP customer recognizes the added value of the new solution, that takes time. Because emarsys may be a good product, but similar products are a dime a dozen. And SAP customers have certainly integrated an alternative product to emarsys into their landscape (more or less well).

So if an SAP customer doesn’t recognize the added value or if it takes too long, they will quit faster than SAP would like.

Unfortunately, the competition from the USA will be happy to see this happen. But let’s also wait for their next quarterly reports. There may be comparable corrections to the target figures. Which would not come as a surprise.

 

Note: This is a machine translation. It is neither 100% complete nor 100% correct. We can therefore not guarantee the result.

 

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