SAP results post mortem SAP traded 20% lower on its Q3 results, which were accompanied by a lowering of 2020 and 2023 targets, and the stock has continued to drift since, despite the Chairman / Founder purchasing EUR250m of stock at ~EUR100. The slight macro driven adjustment to guidance was understandable. However, the guidance for software license sales to collapse ~80% from 2019-2025, at a 20-25% CAGR, was surprising (as they were down just ~5% in 2018 and 2019), and, along with the accompanying ''mid-single digit'' decline in maintenance revenues, was the main driver of the lowering of 2023 margin targets by 400-500bps (not increased RandD). Considering the resulting lack of margin leverage near term, and cash flow impact, we immediately downgraded to Neutral as margins and cash flows were an important component of our Outperform thesis. Will licenses really collapse? Does SAP believe it has set itself up for a ''win win''? COVID has driven an acceleration in some shifts to the cloud, as well as shifts in purchasing patterns with a preference for subscription based pricing relative to capex driven software license purchases. However, these changes will likely continue to be gradual for large enterprise apps, including ERP, unless SAP does more to make it happen through salesforce and customer incentives, and new deployment options. As of yet, SAP has not articulated how it will push the transition, other than to say that it believes customer spending patterns will change. SAP may believe it has created a win-win: if license sales recover, then SAP will beat consensus expectations (possibly as of Q1''21); if they don''t, then SAP will be seen to be executing on its cloud transition, driving a potential re-rating of the shares, such as Autodesk saw when they accelerated their own cloud transition. We fear that, without more of a push, licenses are likely to beat expectations, but license driven earnings beats may no longer be rewarded by the...