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October 20, 2017

Has SAP fallen from cloud nine?

Is it time for SAP to start panicking?

By James Nunns

A slowdown in cloud bookings has marred SAP’s latest financial results despite positives elsewhere.

Whilst revenue and operating profits both increased, software remains the dominant force in the SAP portfolio, bringing in €3.7bn for Q3, up 1% year on year, but it’s cloud revenue and bookings that everyone is looking at.

The German software maker wants to be known as a cloud company, but shaking that legacy software base isn’t easy. SAP has been making positive strides but a fall in booking from 49% in Q1 2017, to 33% in Q2 2017 and now a further decline to only increase by 19% in Q3 over the same period in 2016, is a worrying trend. SAP Software

Although the company reported an operating profit of €1.31bn and cloud subscriptions and support of €937m, a 22% increase, the steady decline in bookings could be damaging.

Initially the share price of the company fell by 1.6 % in response to the earnings, however, after raising its full-year guidance for revenues and core profits, the price rebounded to sit at €95.80 at time of writing.

SAP CEO Bill McDermott said during a conference call: “We are gaining share against our competitors. SAP is growing faster in the Cloud – and we are doing it organically.”

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Whilst McDermott remains confident, SAP needs to be able provide investors with reliable figures that support the notion of a sustainable cloud model for a company that is more used to running a software business than a cloud one.

SAP’s bet heavily on cloud technology as the future of its company, investing in acquisitions and bringing in new talent. The sky isn’t falling down on SAP, far from it, it’s still growing its cloud business and the company is still committed to its 2020 vision of a 30% growth in cloud. Its legacy products are holding firm and not seeing a sharp decline, so there’s clearly no reason to panic.

The S/4 HANA saw a 70% year-on-year increase in customers to 6,900, with 600 new customers in Q3, so it’s not all bad news for the German company.

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