SAP (SAP, Financial) is an application and analytics software and software-related services for enterprises provider across the world. The company is aggressively focusing on the cloud market to make the most of the opportunities that are projected to unfurl in that area. For example, SAP’s flagship innovation, SAP HANA and its broader market adaptation in the cloud, has been a great growth driver. Let’s take a look at the first-quarter fiscal 2015 results and future prospects.
Looking back
On the back of the weaker euro, revenue got a boost from markets including the U.S., the company delivered estimate-beating first-quarter fiscal 2015 sales of €4.5 billion, representing year-over-year growth of around 22%. Adjusted operating profits came in at €1.06 billion. This is against €4.5 billion in revenue and adjusted operating profits of €1.07 billion as projected by analysts.
On the back of robust top-line growth, earnings per share increased 5% year-over-year to $0.58. Also, Operating cash flow for the quarter was €2.67 billion, up 1% year-over-year. The company exited the quarter with cash of 5.43 billion and debt of 11.55 billion.
Cloud to drive growth
During the first quarter of fiscal 2014, SAP unveiled the evaluation of its strategy to become the cloud company powered by SAP HANA. The company has executed well and at the end of first-quarter fiscal 2015, Cloud saw a staggering 131% growth with 80 million cloud users in its kitty, the most in the enterprise software industry. Also, Software and Cloud revenue grew 24% year-over-year, making it the fastest growth in last 12 quarters.
The next generation Suite SAP S4 HANA is gaining robust early traction with over 370 deals already in place. This again is a staggering performance keeping in mind that this solution was launched only in the first quarter. The company exited the quarter with 6400 HANA customers, which is double the number it was a year ago.
SAP’s HANA platform also continues to evolve as a development platform, enabling easier and quicker means of extending and customizing SAP applications in the cloud. Consequently, this is gaining significant traction and has attracted 1400 customers at a rapid clip. Partners like Accenture are building new and innovative applications on the HANA cloud platform.
According to a report from Goldman Sachs, enterprise spending on cloud computing is projected to grow at a CAGR of 30% from 2013 through 2018 versus 5% growth for the overall enterprise IT. This presents a tremendous opportunity for SAP’s long-term growth potential as it already is witnessing significant wins.
Internet of Things is another growth driver
According to Cisco (CSCO), about 50 billion devices will be connected to the Internet by 2020. On the other hand, a separate projection from Morgan Stanley says that this figure could be as high as 75 billion over the same time frame. Whichever number we look at, there is little doubt that devices connected to the Internet of Things, or IoT, will soon be flooding the mass market.
SAP has the perfect combination of assets to bring about a revolution in the IoT market. With SAP Internet of Things big data platform, customers can build new applications combining predictive analytics, real-time event processing, and context-aware real-time insights.
Kaeser Kompressoren with predictive maintenance and service, and the Port Authority of Hamburg with connected logistics are two early stage wins in IoT for SAP. What’s more, Siemens will base their Internet of Things platform on SAP technology.
Wrapping up
SAP is shifting its focus toward the cloud, but the core business also remains stable with software licenses and support revenue growing 16% year-over-year. CEO Bill McDermott said on a conference call,
“Our plan is to be a growth company. We have no interest in announcing that we didn’t grow and then detailing the costs we cut to hold expenses in line."
Fiscal 2015 non-IFRS operating profit is expected to be in the range of €5.6B-€5.9B at constant currencies, and non-IFRS revenue from cloud subscriptions and support in the range of €1.95B-€2.05B. Analysts expect growth for the next five year to be at a CAGR of 10.10% versus 9.90% in the previous five years. However, with its strong footing in the cloud and IoT market. Things look good for the long run.
Hence, SAP is a buy for long-term gains.
