SAP opened the results cupboard door earlier this month when it released Q4 and FY prelims (see here) and saw its share price drop despite a good top line because operating profits and margins dipped (on an IFRS basis). There were no notable changes in today’s full results but the awaited net profit figures were delivered.
Q4 showed an 8% YOY decline – but that still meant a profit after tax of €1.1bn on revenue up 12% to €5.02bn. For the full year net profit was €2.8bn on revenue up 14% to €16.2bn, which is a drop of 18% YOY. Share-based compensation, acquisitions and rising head count (organic and due to acquisitions) are taking their toll. So, no doubt, are investments in HANA, mobile and cloud. In the earnings release SAP cites global go-to-market activities and its cloud business for the decrease in profitability which raises the long running question of when or even if SaaS can be profitable with its current business model.
As of the Q4 and FY12 results SAP has started reporting and forecasting on Software and Cloud Subscriptions Revenue (the combined revenue of existing Software Revenue and Cloud Subscriptions and Support Revenue). This was up 16% in Q4 (IFRS and non-IFRS/constant currency) and 19% IFRS/17% non-IFRS/constant currency for the full year. The company is forecasting a 14%-20% (non-IFRS) increase for FY13. Software and software related service revenue is expected to see growth of 11%-13% vs the 13% constant currency figure for the year just closed. As subscription revenue is c3% or c5% of SAP’s overall revenue (depending how you cut it), this indicates a slowing growth rate for the main area of SAP’s business rather than the impact of lower price subscriptions. Operating profit for the year is expected to be in the € 5.85bn-€5.95bn range at constant currency (vs € 5.21bn for FY12).
The results reflect the major changes the company is working through - and the economic background of course. SAP is still one of the higher growth companies in the software sector (where low single digit growth is more common) and it is managing that because of its upfront investments in new areas of business (which are taking their toll on profitability). An area where it would be good to see more clarity is around the growth and revenue targets for HANA (on which it has bet the business), as well as mobile and cloud services. Although HANA is said to be exceeding targets and is the fastest growing product area in the company’s history, SAP is keeping those targets under wraps. They will be the acid test of its long term performance.