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22 Jul 2021
Accelerated cloud transition on track, despite CCB
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Accelerated cloud transition on track, despite CCB
SAP SE (SAP:ETR) | 0 0 0.0%
- Published:
22 Jul 2021 -
Author:
Slowinski Stefan SS | Castillo-Bernaus Ben BC -
Pages:
17
We were reassured by SAP''s Q2 results, even if the market wasn''t
SAP slightly beat consensus constant currency revenue growth expectations for Cloud, Software Licenses and Support (i.e. Maintenance). Op margins beat consensus by 90bps, with investments shifting from SandM to RandD, helping Customer Net Promoter scores as SAP''s product focus intensifies, while the successful SAPPHIRE Ventures investments continues to drive big EPS beats (48% beat in Q2). Hyperscale relationships are progressing well with Cloud GMs above 70% while SAP Capex was down 31% y/y as it de-emphasizes its own IaaS. SaaS/PaaS revenue (ex Intelligent Spend) grew 25% at c/c, while Intelligent Spend is growing again and Concur has stabilized. SAP reiterated the high end of the FY revenue growth guidance, raised the high end of its operating profit growth guidance while reiterating FCF guidance.
Cloud revenue growth acceleration on track for H2 and 2022, as expected
SAP gave insight into the progress on its Cloud acceleration program, which targets a 24% Cloud CAGR from 2020-2025, saying that H1 metrics (Revenues, Backlog, Bookings, Order Book) put SAP ahead of schedule on the CAGR target. The conversion ratio of Support to Cloud Subscription is ahead of plan at 3:1 in Q2. Yes, the Current Cloud Backlog growth was slightly below consensus (20% vs 22%), but CCB has not proven to be a good predictor of Cloud revenue growth at SAP (CCB thus far higher correlated with current period subscription growth, not future periods). New Cloud Bookings are a small portion of CCB, and most existing customer cross selling and upselling will likely occur in Q4. We still model an acceleration to low 20s Cloud growth in H2 from 15% in H1, resulting in 20% c/c Cloud growth this year vs consensus of +18%. We expect mid 20s in 2022. With Cloud revs reaching near 50% of total Software revs at SAP next year, SAP is rapidly approaching the tipping point between legacy license vendor and primarily a...