BERLIN: Business software group SAP forecast flat revenue and a decline in operating profit in 2021 after reporting fourth-quarter results that beat market expectations, sending its shares up in early trading on Friday.
Giving an early view of 2020 results and setting 2021 guidance, SAP said adjusted revenue, at constant currency, would be unchanged to up 2% this year, while adjusted operating profit was seen falling by 1%-6%.
“This update should trigger a modest relief rally on Friday,” said Citi analyst Amit Harchandani, adding, however, that the overall level of near-term uncertainty meant he would keep his neutral rating on the stock.
CEO Christian Klein abandoned his medium-term profit targets last October and said SAP would go all-in on its shift to cloud computing, cautioning that business would take longer than expected to recover from the coronavirus pandemic.
That announcement, which came with a third-quarter earnings miss, sparked the biggest drop in SAP shares in a generation, causing the leading provider of enterprise software to lose its mantle as Europe’s most valuable technology company.
SAP’s 2020 revenue exceeded its lowered guidance, while profit hit the high end, the company said in an overnight news release issued ahead of results scheduled on Jan. 29.
“SAP’s business performance sequentially improved in the fourth quarter even as the COVID-19 crisis persisted and lockdowns were reintroduced in many regions,” SAP said in a statement.
SAP shares were up 1.3% in early trade. They have lost more than a quarter in value since their all-time high set last September, valuing the Walldorf-based company at $156 billion.
CLOUD GROWTH
Cloud revenue continued to be impacted by lower pay-as-you-go transactional revenue, however, in particular for Concur, SAP’s expense management app that has been hit by a slump in corporate travel.
That was offset by strength in e-commerce, business technology platform and customer experience sales, as well as wins for SAP’s human resources application SuccessFactors.
“SAP also saw strong early take-up of its new holistic business transformation offering among pilot customers, contributing to the cloud performance in the quarter,” the company said.
SAP says its switch to subscription-based cloud services will boost growth and profit margins in the long term, but weaning itself off the upfront fees that its legacy software licences throw off will create near-term headwinds.
Non-IFRS cloud revenue at constant currencies rose by 13% in the fourth quarter, while current cloud backlog – the company’s preferred indicator of sales performance – grew by 14%, also at constant currencies.
Quarterly operating profit was lifted by lower share-based compensation expenses, rising 3% at constant currency. Adjusted operating margin, also at constant currency, expanded by 1.5 percentage points to 36.8%.
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