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09 Apr 2021
The fight back begins. Q1 earnings preview
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The fight back begins. Q1 earnings preview
SAP SE (SAP:ETR) | 0 0 0.0%
- Published:
09 Apr 2021 -
Author:
Slowinski Stefan SS | Castillo-Bernaus Ben BC -
Pages:
12
RISE creates low visibility, but also an opportunity for SAP to begin to outline transition
SAP launched its RISE initiative in January, aimed at getting customers to convert existing on premise maintenance contracts to subscriptions while migrating their ERP to the cloud. How many customers are already signed up? Will the impact already be visible in Q1? Will the license collapse SAP guided for begin in Q1 despite the very easy comps? Will maintenance revenues decline in c/c for the first time in Q1? How much of Cloud revenue growth (and current cloud backlog) will be maintenance conversion? What new metrics will SAP begin to provide to help investors monitor the license / maintenance to cloud transition? Will SAP begin to break out S4 Hana Cloud revenues and growth? Six months after SAP''s re-basing of expectations, and now that the RISE strategy has been detailed, SAP has an opportunity to begin to improving visibility.
Expect SAP to counter Oracle''s claims and fight back on success of S4 Hana uptake
On Oracle''s last conference call, the company outlined 100 wins in SAP''s installed base. We expected SAP to fight back on these claims at the Q1 results. Oracle has also announced its own version of RISE (Oracle Cloud Lift) to move clients to the cloud for free (replacing a similar previous offering). We believe the competitive noise is less important than whether the market is ready for wide-spread cloud ERP adoption, and if COVID has been the catalyst for that to happen.
So what do we expect in the Q1 results?
SAP''s customer net promoter score improved in 2020 after a weak 2019. And our recent reseller survey work is supportive of customers spending more with SAP. But understanding of RISE remains low. We believe a license beat is possible (just like Q4) but the market will likely dismiss it (just like Q4). Cloud revs will benefit from MandA (Emarsys and one month of Signavio) and may benefit from maintenance conversion. We model 12.3% c/c...