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SAP - BUY | EUR153 FY19 call feedback: rolling out the scenario with no real concern Slowdown in cloud revenue growth due to specific factors The benefits of the “Best Run” programme are materialising Free cash flow is still expected to surge in 2020 The 2025 deadline issue for SAP ERP will be addressed very soon
SAP
SAP - BUY | EUR153 FY19 results in line; FY20 guidance upped but still slightly below our forecasts FY 2019 results were in line with expectations SAP continued to benefit from cloud gross margin improvement FY20 guidance is upped but remains slightly below our forecasts
SAP’s 19Q4 results were mixed, though globally in line with consensus, with sales up +8% and a margin contraction of 590bp on an IFRS basis, while it expanded by 110bp on non-IFRS. It is always strange to observe such a difference trough in accounting methods. The cloud development quarter over quarter was also disappointing with a clear deceleration in new cloud bookings in relative terms. We remain unconvinced by SAP’s current equity story based on shifting from licences to cloud revenues.
As part of its Capital Markets Day, the SAP’s new team confirmed the mid-term targets (growth and margins) set earlier by the former CEO. While revenues of above €35bn and operating profit of c.€11.9bn by 2023 were both already known, the new target was on FCF, which is expected to grow by 15-25% per year and reach c.€8bn by 2023. The ambitions are there, but the execution will be more complicated in our view. We stick to our Reduce recommendation.
Europe clearly admits the domination of the cloud by the American majors. Independence is becoming increasingly urgent, especially since the Trump administration signed the Cloud Act in 2018, allowing it to ask American companies to deliver their customers’ data, including those stored outside the US. The German project, called Gaia-X, aims to create a European legal framework necessary for the development of a European cloud. Although the European Commission supports the initiative, it remains sceptical and awaits further concrete details.
SAP - BUY | EUR153 Q3 2019 call feedback: efficient and rock solid SAP showed its resilience while the sales pipeline is solid The integration of Qualtrics goes fast S/4HANA Cloud is now a meaningful revenue contributor Plunge in capex but FCF still set to fall slightly in 2019
Having released its Q3 preliminary results two weeks ago, SAP today provided further details with its final Q3 release. The margin development was good in both cloud and software licences. The new partnership with Microsoft is good news as it will accelerate and simplify the migration to S/4HANA. SAP confirmed its 2019 outlook as well as its medium-term ambitions. SAP’s equity story, however, does not change, and therefore we stick to our Reduce recommendation.
Final Q3 results and FY19 guidance confirmed; partnership with Microsoft Q3 2019 results were confirmed Cloud gross margin up 5.4ppt thanks to almost all business lines FY19 guidance unsurprisingly reiterated We reiterate our Buy rating, and Microsoft Azure may be a catalyst
SAP Resapp Health
SAP - BUY | EUR153 Solid Q3 2019 results, FY19 guidance confirmed, CEO McDermott steps down Q3 2019 results were above consensus FY19 guidance was reiterated McDermott steps down; Morgan and Klein appointed co-CEOs We expect a positive share price reaction short-term
Software & IT services Q4 2019 Top Picks: adding Atos, removing SAP and Sopra Steria European IT stocks have clearly underperformed in Q3 2019 We do not expect material trend changes in Q4 2019 We remove SAP and Sopra Steria from our Top Pick list… …and replace them by Atos on expected better growth momentum
SAP RAP SOP ATO
SAP - BUY - Top Picks | EUR153 Q2 2019 call feedback: the route is traced out Asia is not a real concern, while a rebound is expected in Q3 All engines are there for a 5ppt operating margin increase by 2023 Higher-than-expected non-recurring items are justified No change to our Top Pick investment case
SAP - BUY - Top Picks | EUR153 Decent Q2 2019 results, while the cloud gross margin surged Q2 2019 figures almost in line with expectations Surge in Cloud gross margin thanks to the migration to HANA FY19 guidance reiterated, but restructuring costs upped
SAP reported a mixed set of results. Revenues grew, while margins remained flat (non-IFRS) or were down (IFRS). The street is focused on Cloud and margins, which we fully understand, but what about the gap between IFRS and non-IFRS figures? Once again, share-based compensations and restructuring costs have penalised the FCF development. When will SAP think about its shareholders? Actually, we could accept this kind of fee if the Cloud had clearly taken off. But that is not the case….
SAP reported a good set of results over the first quarter. Revenues and operating profit grew under non-IFRS standards, while the latter declined in IFRS mainly due to restructuring costs (€886m) and high share-based compensation (€517m). Further details will be disclosed at the second CMD announced for 12 November, with a focus on margins and operating leverage initiatives. We confirm our positive view on the stock, though it is not yet a strong buy.
SAP reported a disappointing operating profit in Q4, with declining margins due to its shift into the less lucrative cloud business. In addition, cloud bookings grew at a slower pace over the fourth quarter compared to previous quarters. Management revised: i) its 2020 targets, with higher sales but non-IFRS operating profit unchanged, hence reflecting lower margins and, ii) 2023 targets provide less margin expansion than expected as well. A restructuring plan will be announced in 2019.
Qualtrics: transaction overview Price: purchase price of $8bn, or €7bn (including invested employee incentive compensation) Financing: SAP has obtained a €7bn credit facility (loan) to cover the purchase price and acquisition costs. SAP expects to refinance parts of the credit facility via the issuance of debt securities. Management & governance: Ryan Smith will continue to lead Qualtrics, reporting to Robert Enslin, President, SAP Cloud Business Group. Expecting closing: in H1 19; still subject to regulatory approval.
Key highlights Total Q3 revenues up +8% (IFRS) and +10% (non-IFRS at cc) to €6.02bn. Cloud revenue growth once again accelerated, up +39% (IFRS) and +41% (non-IFRS at cc). New cloud bookings up +37% at cc (+29% in Q2 and +25% in Q1) to reach €411m. +500 S/4 HANA customers added in Q3, now accounting for c. 9,500 customers. Double-digit operating profit, up +13% (IFRS) and +10% (non-IFRS at cc). IFRS EPS was down 1% to $0.82 while Non-IFRS increased +13% to €1.14 per share. Outlook for 2018 (somewhat) raised: Non-IFRS cloud subscriptions and support revenue now expected to be in the range of €5.15-€5.25bn at cc (previously €5.05-5.2bn at cc). Non-IFRS cloud and software revenue now expected to be in the range of €21.15-21.35bn at cc (previously €21.02-21.25bn at cc). Non-IFRS total revenue now expected to be in a range of €25.25-25.50bn at cc (previously €24.97-25.3bn at cc). Non-IFRS operating profit is now expected to be in a range of €7.425-7.525bn at cc (previously €7.4-7.5bn at cc).
Solid Q2 results across the board: the accelerating momentum in the cloud business led to an upgrade of the 2018 and 2020 outlook.
Total revenues remained flat at around €5.26bn (-0.4%) Cloud subscription revenues increased 18.3% (31% at cc) to €1.07bn Licence revenues dropped 9.6% to €625m and maintenance revenues 2.7% to €2.66bn Real EBIT jumped 54.9% to €1.02bn and the EBIT margin increased from 12.4% to 19.3% Outlook more positive due to the first-time consolidation of Callidus. Cloud revenues are expected to range between €4.85bn and €5.15bn (previously €150m less)
SAP has closed the acquisition and taken over of the loss-making software company Callidus earlier than expected. Callidus was acquired on 30 January for a total of US$2.4bn and the deal was closed 66 days later. The business of Callidus will be integrated into the cloud business. Unfortunately, SAP will not be able to consolidate Callidus in the first quarter. At first glance, this is good news. Management is able to integrate the company in the fast lane, however, Callidus has already cooperated with SAP over the years. Nevertheless, we are cautious about this fast integration process. Taking the growth rates of the cloud business in the last four quarters, revenue growth was still above 20%. The trend, however, showed that it will be difficult to keep the growth rates above 20%, Cloud revenues grew 33.7% in Q1 17, 29.4% in Q2 17, 21.8% in Q3 17 and 20.3% in Q4 17.
Salesforce.com will acquire the software company MuleSoft for a total enterprise value of US$6.5bn Salesforce.com is offering US$36 per share in cash and 0.0711 in Salesforce.com shares (total offer US$44.89 per share) MuleSoft is still loss-making and valued at 22x EV/Sales in 2017 and 15.6x in 2018
Dividend increased by 12% The company increased the dividend by 12% from €1.25 per share to €1.40. Total payout will reach 41.8%, or €1.67bn, compared to 41.1% in 2016. According to the company, the payout ratio will also be increased to at least 40% in the coming years (previously 35%). According to our estimates, an annual dividend increase of €0.10 per share is a realistic assumption. The AGM will be held on 17 May 2018 and the dividend will be paid on or after 22 May. The dividend yield of 1.64% (share price: €85.32) for a technology company is quite impressive.
SAP has announced the acquisition of Callidus Software (NASDAQ: CALD) for a total of US$2.4bn. SAP is offering US$36 per share or a premium of 28% over the last 90 days. Callidus Software offers cloud-based human resource software solutions. The product enables customers to increase the efficiency and effectiveness of the entire sales cycle (sales performance management, sales execution, sales automation leader).
The operating performance suffered The company reported final 2017 results. Revenues increased 6.3% to €23.46bn. Cloud revenues grew 25.3% to €3.77bn but licence revenues remained nearly stable (+0.3%) at around €4.87bn. Maintenance revenues increased 3.2% to €10.9bn and revenues of professional services increased 7.5% to €3.91bn. The gross margin declined from 70.2% to 69.9% marginally. The performance based on the gross margin was mainly driven by the service business. The service gross margin increased from 15.1% to 19.3%, whereas the product gross margin declined from 81% to 80.1%. Real EBIT declined 1.2% to €4.82bn and the real EBIT margin dropped from 22.2% to 20.6%. Adjusted EBIT including all unpleasant cost items increased 5.3% to €6.7bn. The adjusted or virtual EBIT margin declined from 29% to 28.7%. Even based on adjusted numbers, the operating performance of the company is suffering. License revenues declined In Q4 17, revenues increased 1.2% to €6.8bn. Cloud revenues again experienced strong growth momentum and increased 20.3% to €995m. Licence revenues, however, declined by 5.4% to €2.06bn and maintenance revenues remained stable at around €2.75bn. Lower licence revenues normally result in lower earnings. Real EBIT, however, increased 2.8% to €1.94bn and the EBIT margin improved from 28% to 28.4%. Adjusted EBIT margin declined from 34.5% to 34.3% due to lower acquisition-related costs.
Better than expected SAP reported strong Q3 17 results. Total revenues increased 4% to €5.59bn (market estimates of €5.68bn, our estimate €5.55bn) and the gross margin improved from 69.4% to 70.1%. Revenues of cloud subscription and support grew 21.8% to €937m. Licence revenues remained flat at €1.03bn and maintenance revenues increased 1.3% to €2.69bn. The marginal increase in licence and maintenance revenues is mainly due to the change in the business model from licence fees to cloud subscription. The real EBIT margin increased substantially from 19.7% to 23.6% due to lower adjustments (-40%) whereas the virtual (non-IFRS) EBIT margin declined from 29.7% to 29.3%. Net income jumped 34.6% to €983m (estimate €872m). In the first nine months, revenues grew 8.6% to €16.66bn. Cloud subscription revenues increased 28.1% to €2.77bn. The real EBIT margin declined from 19.6% to 17.4% and the virtual non-IFRS EBIT margin from 30.3% to 26.4%. Net income grew 2.6% to €2.17bn.
In September, SAP acquired the software company Gigya, the leader in the customer identity and access management (CIAM) market according to latest research from Forrester and Gartner. The Israeli company, now with headquarters in Mountain View, California, manages around 1.3bn customer identities with over 300 employees. Gigya helps companies turn unknown site visitors into known customers (business to consumer platform). Worldwide more than 700 leading companies rely on Gigya to build identity-driven relationships. Gigya offers a cloud-based platform for social networking infrastructure technology on websites. The platform allows the websites to identify their customers across devices and platforms. The gathered data is then consolidated into a customer profile.
SAP reported Q2 17 results. Total revenues increased 10.4% to €5.8bn and gross profit increased 8.2% to €3.9bn. The gross margin declined from 70.4% to 69% but is still on a comfortable level compared to previous quarters. Adjusted EBIT increased 11.6% to €1.58bn but real EBIT dropped 20% to €934m. The EBIT margin declined from 22.3% to 16.2% which is the second lowest EBIT margin since 2001. Net income declined 18.1% to €668m and EPS, accordingly, from €0.68 to €0.56. Management initiated a share buy-back programme worth €500m.
Several days ago, SAP was accused of being involved in a bribery scandal in South Africa. According to the accusations, the company paid a kick-back of €6.5m (10% of the total contract volume with Transnet SOC Ltd) to CAD House in 2015. CAD House is a small South African company providing 3D printers. Around 10% of the company is owned by Duduzane Zuma, the son of Jacob Zuma, the President of South Africa. In addition, several members of the Gupta family also have a stake in CAD House.
On 18 May, Salesforce.com reported first quarter results ending in April 2017. Revenues increased 24.6% from US$1.92bn to US$2.39bn. The gross margin declined from 74.1% to 72.8% and the operating performance turned from a profit of US$52m to a loss of US$8.9m. The real operating margin reached -0.4% and the non-GAAP operating margin 13.3%. Net losses reached US$9.2m compared to a net profit of US$38.7m in Q1 16. The company experienced balanced revenue growth in the Americas (+25%), in EMEA +25% (total share of 17%) and Asia Pacific +29% (total share of 9%). Due to the strong revenue growth, management raised the outlook for the second quarter. Revenues are expected to grow between 23% and 24% to be reach between US$2.51bn and US$2.52bn. Based on the the research of industry analysts (Gartner, IDC) Salesforce.com is the undisputed CRM market leader with a market share of 18.1%, followed by Oracle (9.4%), SAP (7.2%) and Microsoft (1.4%).
SAP reported solid first quarter results. Total revenues increased 11.8% to €5.28bn and total costs 17.2% to €4.63bn. Gross profit increased 14.5% to €3.5bn and the gross margin improved from 65.1% to 66.7%. Real EBIT, however, dropped 15.8% to €655m and the EBIT margin declined from 16.5% to 12.4%. According to the company, the virtual EBIT (non-IFRS adjusted) grew 8.5% to €1.2bn, mainly driven by adjustments for share-based compensation programmes. The adjusted non-IFRS EBIT margin declined from 23.4% to 22.7%. Net income dropped 8.9% from €572m to €521m (estimate: €599m).
In the latest press release, SAP promoted proven leaders to strengthen the company. The company has expanded the responsibilities of the key executives Robert Enslin and Bernd Leukert. Their responsibilities will be shifted and expanded. Robert Enslin will become president of the new Cloud Business Group and Bernd Leukert will expand his portfolio to accelerate SAP’s platform and digital transformation strategy. In addition, the supervisory board has promoted Adaire Fox-Martin and Jennifer Morgan to the executive board. All changes are effective from 1 May. Steve Singh, the former CEO of Concur Technologies, has resigned and is planning to focus on other entrepreneurial interests outside SAP. We had expected this move to happen earlier. The former CEO Lars Dalgaard of Success Factors (acquired by SAP) joined the management board in April 2012 and left after twelve months. Steve Singh joined SAP in 2014 when Concur Technologies was taken over. In April 2016, he was appointed executive board member only to leave twelve months later. His term was to have expired in 2019.
SAP and Google have announced a cloud partnership. SAP HANA will run on Google Cloud Platform (GCP) to deliver real-time insights on a scalable and secure cloud infrastructure. The Google partnership will give SAP’s customers another option to use the cloud infrastructure efficiently. SAP will remain custodian of the data which will remove barriers of entry. SAP’s strategy is to get HANA distributed on as many platforms as possible. For Google, SAP and also other well-known partners are necessary to scale the business.
The company reported solid results in Q4 16. Revenues increased 6% to €6.72bn. Cloud subscriptions and support revenues increased 30.9% to €827m, licence revenues 1.4% to €2.18bn and maintenance and support revenues 6% to €2.76bn. EBITDA increased 42.1% to €2.2bn and the EBITDA margin improved from 24.6% to 33%. Real EBIT jumped 52.2% to €1.88bn and the EBIT margin increased from 19.5% in Q4 15 to 28%. Net income jumped 79.4% to €1.5bn. In the financial year 2016, revenues grew 6.1% to €22.06bn. Cloud subscriptions and support revenues increased 30.9% to €2.99bn and the gross margin improved from 70% to 70.2%. Real EBIT grew 22.3% to €4.89bn and the EBIT margin improved from 19.2% to 22.1%.
The company reported third quarter results. Total revenues increased 7.8% to €5.38bn. Cloud subscription & support revenues grew 28.4% to €769m. We estimated an increase of 31.2% to €786m and the market around €787m. New cloud bookings (order entry) increased 24% to €265m. Software licence revenues grew 2% to €1.04bn (our estimate +3.5% to €1.04bn). Maintenance revenues increased surprisingly strong by 5.7% to €2.65bn (estimate: 2.2% to €2.56bn). EBIT, however, dropped by 9% to €1.1bn. We expected an EBIT increase of 10.5% to €1.3bn. Net income dropped 19% to €730m (estimate: +6.3% to €955m). Cloud subscription and support revenues grew 34% from €136m to €182m in the EMEA region, and were especially strong in Germany, France and the UK. In the Americas, cloud revenues increased 24% to €508m, and in Asia Pacific around 52% to €78m. In the third quarter, the company added 400 new SAP S/4 HANA customers (+40%). Around 4,100 customers are now using this cloud platform.
Salesforce reported second quarter results ending in July. Revenues increased 25% to US$2.04bn. EBIT jumped 64.2% to US$32.5m and the EBIT margin improved from 1.2% to 1.6%. From an earnings perspective, the company is not really visible. Net income, however, jumped from a small loss to US$229.3m. Around US$205.3m was related to a tax benefit as a result of the release of a portion of the valuation allowance related to the acquisition of Demandware. Salesforce.com acquired Demandware for a total of US$2.6bn and was also bidding for Linkedin which was bought by Microsoft for a total of US$26.2bn. GAAP income turned from a loss of US$0.85m to a profit of US$229.6m. Non-GAAP related income increased 32.9% to US$170.4m or US$0.24 per share. This includes amortisation of purchased intangibles, share-based compensation and other unpleasant cost items. Business in the Americas contributed 73% to revenues, Europe 17% and Asia Pacific 10%. Management experienced some weaker demand at the end of the second quarter but still raised the full-year revenue guidance range to between US$8,275m and US$8,325m.
SAP reported a strong operating performance in Q2 16. Total revenues increased 5.4% to €5.2bn (our estimate: €5.3bn). Cloud revenues grew by 30.4% to €720m (our estimate: €722m). EBIT jumped 79.2% to €1.16bn which was also in line with our expectations. Our EBIT definition, however, differs from the company’s reported EBIT. We use IFRS numbers and include other operating expenses/income which is not part of the SAP calculation. Despite the strong cloud business, licence revenues grew by 6.2% to €1.04bn and maintenance revenues 2.6% to €2.6bn.
At the AGM, the shareholders approved the new compensation system for the executive board starting in 2016. The approval, however, was not so well explained as it should have been. Around 66.1% of the total capital or 812m shares/votes attended the AGM. Around 45.31% was against the new compensation system and 54.69% of the shareholders agreed. This is not a SAP-style approval. Nearly every topic on the agenda was approved by at least 95% of the attending shareholders or even more in the past. The good old days are over.
SAP reported final Q1 16 results. Revenues increased 5.1% to €4.72bn. The operating profit jumped 59% to €778m and the real EBIT margin increased from 10.9% to 16.5%. Total adjustments were reduced from €413m by €123m to €290m due to lower share-based payment expenses. In addition, the company faced additional non-operational expenses of €35m compared to €148m in Q1 15. These so-called non-operational expenses, mainly foreign currency exchange gains/losses, are excluded from SAP’s EBIT calculation. Total revenues in Germany increased 8%, in EMEA 5%, in the USA 10% but declined 7% in the rest of the Americas mainly in Brazil. Revenues in Asia Pacific remained stable, but increased 9% in Japan and declined 2% in other regions. According to management, business in China was the highlight with double-digit software revenue growth. Total cloud subscription and support revenues grew 35% to €677m; in EMEA 49%; 31% in the Americas and 27% in Asia Pacific. For SAP, the Americas are the largest cloud market with a total volume of €460m or 68% of total cloud revenues in Q1 16.
The company reported preliminary Q1 16 results. Cloud subscriptions and support revenues increased 35.2% to €680m. Software support grew 4.3% to €2.56bn and licence revenues declined 12.4% to €610m. Real EBIT according to our definition grew 65.5% to €810m. The EBIT margin jumped from 10.9% to 17.1%. Net earnings per share grew 39% to €0.48 compared to €0.35 in Q1 15. According to management, business in Europe and Asia Pacific was solid. Business in Brazil suffered from economic uncertainties and business in North America experienced a slower start due to a strong fourth quarter.
Oracle reported Q3 15/16 results ending in February 2016. Revenues declined 3.4% to US$9bn and net income dropped 14% to US$2.14bn. Cloud revenues however jumped 40% (44% at cc) to US$735m. Software licence revenues declined 15% to US1.68bn. This decline clearly indicates that Oracle is still ahead in the transition process in the licence to the cloud business model. In Q4 15 ending in December, cloud revenues of SAP increased 80% to €630m (US$693m) and 34.3% excluding the acquisitions of Concur Technologies and Fieldglass. Operating profits of Oracle dropped 13% to US$3.03bn and the operating margin declined from 36.3% to 33.6%. Revenues in the Americas declined by 3.7%, in Europe/Africa and the Middle East by 5.4% but increased in Asia/Pacific by 2.1%.
In the financial year 2015, cloud and support revenues of SAP jumped by 110% to €2.29bn. Excluding the acquisitions, Concur Technologies and Fieldglass, cloud-related revenues increased 43.2%. In the fourth quarter, cloud revenues increased 80% to €630m and 34.3% excluding the Concur Technologies acquisition. Adjusted growth rates are still solid within the industry. Oracle reported an increase of 33.8% (Q1 16 end August) to US$451m, salesforce.com +23.9% (Q3 16 end October) to US$1.6bn and Workday +47.6% (Q3 16 end October) to US$242.7m.
SAP reported preliminary results. In 2015, cloud subscriptions and support revenues increased 110% to €2.29bn and 82% based on constant currency. Software licence revenues increased 10% to €4.84bn (4% at cc) and maintenance revenues 14% to €10.09bn. The operating profit however declined 2% to €4.25bn and the EBIT margin reached 20.4%. We estimated an EBIT margin of 28.1% based on IFRS numbers. Non-IFRS operating margin also declined from 32.1% to 30.5%. In the fourth quarter, the cloud business showed strong growth momentum. Cloud subscriptions and support revenues increased 81% to €0.63bn and 60% at cc based on non-IFRS numbers. New cloud bookings jumped 75% to €0.35bn in Q4 15 and 103% to €0.89bn in the full year.
Q3`15 revenues increased by 17.2% to €4.98bn and by 10% at constant currency. Cloud subscription and support revenues increased by 116% to €599m and by 90% at cc. Excluding the Concur Technologies acquisition, cloud revenues increased by only 53% (37% at cc). According to the company, EBIT increased by 5% to €1.21bn and 15% at cc. The EBIT margin declined from 27.2% to 24.4%. According to our calculations, the EBIT margin declined from 28.4% to 23.8%. The virtual EBIT margin, which includes share-based compensation, restructuring charges and acquisition related costs, increased from 31.8% to 32.4%. Net income dropped by 16% to €469m and EPS reached €0.39 versus €0.47 in Q3`14. In the first nine months, revenues increased by 19% to €14.45bn and by 9% at constant currency. Cloud revenues increased by 124% to €1.65bn and 93% currency adjusted. Excluding Concur Technologies and Fieldglass, cloud revenues increased by 47% and currency adjusted by 28%. The operating profit remained broadly stable at c.€2.55bn (+5% at cc). The virtual operating margin declined from 24.8% to 24.2% and the real EBIT margin from 24.2% to 16.2%. Total operating profit adjustments amounted to €1.5bn versus €926m in 2014. Net income declined by 10% to €1.97bn.
Oracle reported Q1 15/16 results ending in August. In general, the company suffered from unfavourable currency exchange rates (appreciation of the US$). Total revenues declined 2% (at cc +7%) to US$8.45bn and operating income dropped 10% (at cc +2%) to US$2.65bn. The real operating margin declined from 34% to 31% and the virtual EBIT margin from 44% to 41%. Cloud software as a service revenues grew 34% (at cc 38%) to US$451m. Including revenues from cloud infrastructure as a service, total cloud revenues increased 29% (at cc 34%) to US$611m. The cloud's gross margin reached 40% and is expected to reach 60% in Q4 16 and 80% two years from now. SAP's Q2 results indicated stronger growth momentum. Cloud subscription & support revenues jumped 129% to €552m (in US$618m) and 92% at constant currency. The cloud's gross margin already reached 61.6% compared to 56.4% in Q2 14. In US$ currency, SAP has overtaken Oracle in the second quarter ending in June compared to the first quarter of Oracle ending in August. Oracle's management however is targeting salesforce.com as the major competitor. Not a word about the success story of SAP. SAP's licence revenues increased 2.3% to €979m (at cc -7%). Licence revenues of Oracle declined 16% (at cc -9%) to US$1.15bn. The decline in licence revenues might already indicate a successful switch to the new business model. According to our estimates, Oracle's cloud revenue growth was too low in Q1 15/16 to justify this conclusion.
The company reported strong Q2 15 results. Revenues increased 19.7% to €4.97bn. Non-IFRS revenues grew 20% and based on constant currency by 8%. Cloud subscription revenues grew 129% to €552m and excluding acquisitions cloud revenues grew 50% (non-IFRS +63.5%). Fieldglass contributed €25m to IFRS revenues and Concur Technologies €165m. Licence revenues went up 2.3% to €979m and maintenance revenues +11.1% to €2.53bn. Service revenues jumped 34.7% to €908m. The service gross margin reached 8% compared to 12.3% in Q2 14. The product gross margin however improved from 79.9% to 81%. Real EBIT dropped 34.4% to €648m and the EBIT margin declined from 23.8% to 13% (real EBIT also includes other non-operating income/expense). Virtual EBIT however declined from 29.8% (including the Versata litigation 36.7%) to 28%. Total virtual EBIT declined 12.1% to €1.34bn. Special costs items which are added back to the virtual EBIT jumped 28.9% to €692m mainly driven by high restructuring charges of €367m alone. In 2014, the company faced around €289m in litigation charges (Versata). All regions contributed to growth, especially business in the Americas. Revenues in the Americas grew 33.9% to €2.07bn. In the US market, revenues grew 42.6% to €1.66bn, also driven by favourable exchange rates. At constant currency, revenues in the USA grew by 15% and declined by 1% in the rest of the Americas. Total revenues in Asia-Pacific grew 20% and 8% at constant currency.
Oracle reported Q4 15 results ending in May. Total revenues declined 5% (currency adjusted increase of 3%) to US$10.7bn. New software licence revenues dropped 17% (adj. -10%) to US$3.1bn but cloud revenues grew 29% to US$416m (adj.35%. The maintenance business remained stable at US$4.69bn (adj. +8%). The operating performance however dropped 19% (adj. 9%) to US$3.98bn. One reason for the decline is the increase in cloud-related expenses which jumped 86% to US$256m or 2% of total revenues.
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