SAP Lifts Sales Outlook on Cloud Growth

SAP raised its annual revenue outlook and said it would buy back up to a half billion dollars in stock after reporting a better-than-expected jump in sales, lifted by a revamped version of its flagship software, according to Bloomberg.

The German maker of applications that run businesses’ finances, manufacturing and personnel is projecting sales of 23.3 billion euros to 23.7 billion euros this year, based on constant currencies. That’s up about a 100 million euros on both ends of its prior forecast. SAP is about to start a share buyback of up to 500 million euros this year, and it raising its outlook for cloud and software revenue.

Second-quarter revenue rose to 5.78 billion euros, SAP reported, compared with the 5.67 billion-euro estimate of analysts surveyed by Bloomberg. Operating profit, excluding share-based compensation, amortization and other charges, was 1.57 billion euros, compared with the average estimate of 1.58 billion euros. Cloud and software revenue this year will grow 6.5 percent to 8.5 percent, the company said, up from its prior 6 to 8 percent target.

Profit margin remained suppressed as it spends to build cloud-computing capacity. Operating margin was 27.2 percent, compared to analysts’ 28.1 percent average estimate. Investors are looking for margins above 30 percent starting next year.

While it raised its outlook on overall revenue, SAP stuck to a forecast first issued in January for 2017 operating profit of 6.8 billion euros to 7 billion euros. It expects 2017 cloud subscriptions and support revenue of between 3.8 billion euros and 4.0 billion euros at constant currencies, up as much as 34 percent from 2016’s 2.99 billion euros.

Software license sales, a measure of revenue potential tied to traditional on-premise software were little changed at 1.09 billion euros, compared with the UBS estimate of 1.04 billion euros. Cloud subscription and support revenue rose 29 percent to 932 million euros, compared with UBS’s estimate of 958 million euros and Vara Research’s 923 million to 996 million euros.

Cloud computing, software licenses, and support revenue in Europe, the Middle East and Africa rose 9 percent, lifted by Germany and Russia. Those sales were up 8 percent in the Americas and 13 percent in the Asia-Pacific region, helped by demand in China, Japan and Australia. The transition from software that businesses run in their data centers to rented programs delivered online is leading to diverging fortunes in the IT industry.

SAP is investing heavily in research and development and sales of its business apps, data analysis and Internet of things software, which means profit, up 4 percent, isn’t rising nearly as quickly as sales. It hired nearly 3,000 people in the first half of the year.