SAP Q4 and FY prelims show the effect cloud progress is having on performance. The impact is not dramatic and while that is good for shareholders it’s not ideal for SAP given its need to gain market share and credibility in the cloud services area.
Q4 revenue (to December 31 2013) is expected to be up 2% to €510bn (IFRS) or 6% on a non-IFRS and constant currency (cc) basis. The 2% increase is on par with Oracle’s most recent quarter (see here). Software vs. cloud subscription revenue is the see-saw SAP needs to manage. On an IFRS basis, Q4 software revenue was down 2%, while cloud subscriptions and services flew up by 66% but there is still immense disparity in comparative revenue levels with software running at €1.9bn vs. just €209m for cloud subscriptions. Excluding the effect of currency, SAP is managing to grow both cloud and software revenue, but software sales are slowing.
For the full year, prelim revenue was up 4% to €16.8bn (IFRS), or 8% non-IFRS and cc). Software sales were down 3% at €4.51bn (up 2% non-IFRS and cc) with cloud subscriptions up 158% to €697m (130% non-IFRS and cc). The annual cloud revenue run rate has just topped the €1bn mark (similar to Oracle) but remains a small proportion of the overall business. Progress will not be helped by the recent loss of the head of cloud software Robert Calderoni earlier this month. He had only been in the job for 8 months (previously he was head of acquired Ariba), replacing Lars Dalgaard who came to SAP via the SuccessFactors acquisition but left not too long afterwards. These rapid changes suggest on-going problems within the cloud software division or dissatisfaction at the pace of change.
The other major growth area is HANA, and while it is performing in line with SAPs expectations (FY revenue up 69% to €633m actual, or €664m cc, against guidance of €650 – €700m) it has yet to make any significant impact on overall revenue. This situation reflects a market this is interested in emerging technologies but not ready to commit at scale.
Operating profit was up 13% to €1.8m in Q4, and 10% to €4.47m for the full year, but the margin dipped 3.5pp in Q4.
SAP is making the transition to the cloud but progress remains slow. We should know more when the full results are released on January 21.