SAPÂ (SAP, Financial) is a leading player in the ERP software segment, and is one of most trusted software companies in the world for ERP solutions. The German company is well-known for implementing ERP (Enterprise Resource Planning) system. Other than ERP, data mining and data warehousing solutions are also provided by the company. Recently, SAP has been focused on business solutions in public and private cloud computing that has been catalytic to its revenue growth.
Financial performance
The company recently declared its seconds quarter results for fiscal 2014. Consolidated revenue increased by 5% year-over-year, to record $5.66 billion. The company witnessed a major growth of 39% in its cloud-enabled services mainly due to the success of SAP-HANA. Software and software related services also recorded a growth of 8% year over year, it contributed to 83.7% of the total revenue for the company.This growth was achieved despite pressure in Asian countries, especially China.
Despite an uncertain EMEA market, it still recorded year-over-year growth of 8% from its software services and cloud solutions. It recorded double-digit growth in Asia Pacific & Japan courtesy to its cloud-based subscription.
The operating profits of the company decreased 29% year-over-year. The decrease in the operating profits was mainly due to the settlement of the Versata litigation which partly damaged the operating profit of the company.
SAP continues to generate an impressive cash flow of $3.52 billion, up by 4% year-over-year, while cash and cash equivalents amounted to $4.33 billion.
SAP's major acquisitions and innovations have helped it dominate the cloud and this has started showing positive results in terms of comparative revenue growth and its acquisition based strategy of growth should lead to more revenue growth in the future.
Acquisitions & Joint Ventures to expand market
SAP's acquisition of Hybris, an e-commerce solution provider, enabled it to venture into omni-channel commerce. The total estimated market size of this segment is around $37 billion, according to analysts. With Hybris being a leader in commerce solutions, its combination with SAP's expertise should lead to synergies and help it capture a portion of this sector.
Also, SAP's HANA success stories continues and is major contributors to its revenue growth as businesses move to the cloud around the world. SAP expects an increase in its revenue from cloud subscription services and software.
In India, SAP has joined hands with Wipro for providing SAP HANA solutions. Since the Indian market is still nascent as far as cloud computing is concerned and Wipro is a leading software company in India, the partnership would be beneficial for SAP as Wipro has a huge client base with over 140,000 clients spread in over 57 countries.
Competitor
Salesforce.com (CRM, Financial) is a company with its core business model being CRM (Customer Relationship Management) on the cloud. The company has been awarded for being the world's most innovative company for 2 consecutive years by Forbes and for CRM excellence by Gartner and many more.
Salesforce is one of the direct competitors of SAP. Just before SAP acquired Hybris, Salesforce also acquired ExactTarget for $2.4 billion. ExactTarget's solutions was focused on multi-channel marketing automation and the company had around 6,000 customers including the likes of Nike and Coca-Cola. So this deal is helped Salesforce to grow at a fast rate.
Conclusion
Looking at SAP's innovations and tie ups to profit from "Business solutions on the Cloud" I think that the company is in a good position to increase its revenue. Its year-over-year growth even in uncertain global economic conditions shows its strength and the necessity of its products. As more businesses move to the cloud, SAP's performances will improve and investors would benefit.
