License sales help SAP operating profit to beat forecasts
FRANKFURT Europe's biggest software maker SAP (SAPG.DE) reported a 19 percent rise in third-quarter operating profit on Tuesday, surprising markets by bringing forward its forecast-beating results by a week.Revenues from its existing corporate customers held up, while the German company said it was stepping up its efforts to offer more of its products via the internet.Third-quarter operating profit, excluding special items, rose to 1.62 billion euros ($1.84 billion), beating the most optimistic estimate among 14 analysts, whose estimates ranged from 1.45 billion to 1.59 billion euros.SAP said it was sticking to its outlook for the full year for operating profit of 5.6 billion euros to 5.9 billion euros at constant currencies, which represents a rise of up to 5 percent from the figure of 5.6 billion euros last year."Our strong double-digit growth in cloud and software revenue was mainly driven by excellent results in mature markets," SAP's Chief Financial Officer Luka Mucic said in a statement, adding that he expected continued volatility and economic challenges in emerging markets.SAP shares were 3 percent higher by 0915 GMT after earlier hitting their highest level in two months. The company published the figures in the small hours of Tuesday, a week earlier than planned, to keep markets informed of its progress.
"We see SAP's preliminary Q3 results as showing the strength of SAP's underlying businesses and in-line with our thesis on the company that the company will be able to grow revenue as they move to the Cloud," said Mark L. Moerdler, an analyst at Bernstein brokerage, sticking to his "outperform" rating for stock.SAP, whose customers include the world's biggest multinationals, specializes in business applications ranging from accounting to human resources to supply-chain management.Like established rivals such as Oracle (ORCL.N), IBM (IBM.N) and Microsoft (MSFT.O), SAP is striving to boost Internet-based sales to head off fast-growing newer competitors such as Workday (WDAY.N) and Amazon.com's (AMZN.O) web software unit.
While such software is less profitable in the short term, compared to its classic software installed on its customers local servers, providers hope to win higher revenues over time from subscription payments via cloud computing.SAP said its cloud subscriptions and support revenue more than doubled to 600 million euros in the third quarter.Third-quarter total revenue of 4.98 billion euros was slightly ahead of the average expectation of 4.93 billion.
At the same time SAP's established on-premise license business recovered in the third quarter from a weak second quarter, growing 4 percent at constant currencies. In the second quarter license revenues were down 7 percent at constant currencies.Analyst Daud Khan at Berenberg said that the fourth-quarter remained critical for SAP to reach its full-year targets."Investors’ overall impression is that despite pressures in Brazil and Russia, the license business is holding up," the analyst said in a client note. ($1 = 0.8812 euros) (Reporting by Harro ten Wolde; Editing by Ken Wills)