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SAP’s Q4 and full year prelims (the full results are due later this month) tell an appealing tale of top line growth but the positive story was not repeated for the bottom line where investment in new technology and share based compensation brought operating profits and margins down. Shares were down 4%-5% shortly after the release of the prelims.
The Q4 (to December 31 2012) top line was positive with revenue up 12% YOY to €5.02bn but just missed street expectations. The overall figure included a 9% rise in software licence revenue and a massive 2000% (yes, you read that correctly) explosion in cloud subscription and support revenue. Of course, an increase like this is a sure sign of a new area, a low starting base or acquisitions, all of which apply in this case. Cloud revenue expanded from €6m to €126m (including revenue from Ariba and SuccessFactors), but is still sub 3% of SAP’s overall revenue. The rate of change will be important indicator for SAP’s on going cloud performance. (NB: all figures are IFRS).
Strong contribution from the mobile segement meant it reached its full year revenue target of €222m, but at just under €200m HANA was above expectations. EMEA software licence revenue grew a respectable 8%. Investments in cloud, mobile and HANA were part of the reason operating profits and operating margins were down (operating profit dropped 5% to €1.59bn, operating margin fell 5.5 percentage points to 31.6%).
Oracle saw a 3% increase (5% constant currency) in overall revenue for Q2 (ending November 30 2012) - see here, but net income and operating margin both headed upwards. SAP is feeling the pain of upfront investments, something highlighted in ESAS 2013 Make or Break Predictions here. Oracle also exceeded market expectations and its combined new software licence and cloud subscription revenue was up 17%.
For the full year, SAP's revenue was up 14% YOY (including licence revenue up 13% to €4.66bn, and cloud subscription and support up 1400% to €270m with a 12 month run rate heading towards €850m). EMEA software licence revenue grew 8%. However, overall operating profit was down 17%, while the operation margin dropped almost 10% percentage points to 25%.
SAP’s cloud, HANA and mobile developments are still at the stage where they are demanding investment rather than generating substantial revenue. The company will need its deep pockets to support them through their lifecycle but is optimistic (naturally). The action to move Business Suite onto HANA (see here) is an important move, but getting customers to transition in large numbers will be a long road.
