SAP Sales Rise Again

SAP’s sales topped analysts’ estimates for the fourth straight quarter, as business software spending grew, though the costs of transitioning to a web-delivered model weighed on profitability, according to Bloomberg.

First-quarter revenue rose 12 percent to 5.29 billion euros ($5.7 billion), SAP reported, compared with the 5.16 billion-euro estimate of analysts surveyed by Bloomberg. Operating profit, excluding share-based compensation, amortization and other charges, was 1.2 billion euros, compared with the average estimate of 1.23 billion euros.

However, the company’s profit margin was crimped by higher stock compensation costs due to hiring and a loftier share price, CFO Luka Mucic said in an interview with Bloomberg Television. "This will reverse itself in the coming quarters." Private cloud installations for customers also cut into profitability. "As it becomes a bigger portion of the overall pie it will have a dampening effect," said Mucic.

Cloud subscription and support revenue rose 34 percent to 906 million euros, compared with the consensus estimate of 895 million euros. Barclays analyst Gerardus Vos, who has a neutral rating on the sector, wrote in a note to clients this month SAP is his top pick in European software as profit margins, which fell below 30 percent the past three years on the costs of the cloud transition, look poised to expand next year.

CEO Bill McDermott is jousting with rivals Oracle and Salesforce for software spending as businesses upgrade systems that run sales, manufacturing and HR from their data centers or via the internet. Oracle last month reported a big jump in cloud services in its most recent quarter, taking advantage of its leadership in database software and the first full quarter of owning NetSuite, one of its biggest-ever acquisitions.