Cloud Saves SAP

SAP, one of the largest tech firms in Europe, has reported its second quarter earnings.

Revenue saw a 10.4 percent jump and stood at $6.65 billion. This was much higher than the $6.57 billion expected by analysts. Its core profits also rose by three percent to $1.81 billion, but is shy of the $1.83 billion that was expected by analysts.

Out of this revenue, its traditional software licensing rose by a mere four percent only while its cloud business rose 27 percent to $1.07 billion. However, analysts were expecting around 33 percent growth, so this was a failure of some sort to the company. Still, it’s better than that of its rivals. If you look at Oracle’s earnings, you’ll notice that it had a four percent drop in the revenue from its traditional business.

A deep look into its numbers show that its research and development costs increased by 19 percent while its sales and marketing costs rose by 16 percent. Both these costs can be due to its aggressive push into cloud services, but nevertheless it tethered the profits. Had these numbers been lower, SAP’s profits would have notched up a few more to meet the analysts expectations.

That said, one of the outstanding aspects of this cloud earnings was the impressive growth in its cloud segment. According to Bill McDermott, the CXO of SAP, a few of the cloud deals that SAP hoped to sign have been delayed and this is why the cloud revenue was lower than expected. Otherwise, he maintains that the cloud story is a success.

Yet again, it shows the fact that cloud is a dominant technology that no company can take for granted. It is the future and maybe an important revenue stream for companies, regardless of their size, level of profitability and even the nature of their traditional operations.

Going forward, SAP is likely to focus more on its cloud business while keeping the others in operation as well, No major changes have been forecast except for a more aggressive sales and marketing effort for its cloud-based products.  An important announcement that the company made is that it plans to start a 500 million euro buyback program that will start soon and be completed by the end of this year.

Also, it is confident of meeting its financial targets for 2017 or even slightly beat it depending on factors such as currency exchange rates and a growing demand in emerging economies.

With all this information, it’s shares fell by 0.4 percent in early trade in Frankfurt

About The Author
Lavanya Rathnam is a professional writer of tech and financial blogs. Creative thinker, out of the boxer, content builder and tenacious researcher who specializes in explaining complex ideas to different audiences.
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