- German software giant lowers 2022 guidance on rising Russian exit costs
- Stock falls 4%, more than 30% off where it started the year
- Cloud shift surging ahead as clients embrace flexibility
German software giant SAP’s (SAP:ETR) ambitious cloud computing strategy is working, even if investors are less impressed by near-term challenges.
SAP reported second quarter earnings that missed forecasts despite revenue topping expectations as its withdrawal from Russian and Belarussian operations took its toll.
The exit will cost SAP more than originally anticipated, forcing the €106 billion company to lower 2022 expectations.
Restated fiscal 2022 guidance now calls for adjusted operating profits of €7.6 billion to €7.9 billion versus the previous €7.9 billion to €8.25 billion steer. SAP announced Q2 earnings per share of €0.96 on revenue of €7.52 billion, versus €1.08 and €7.32 billion forecasts, respectively.
SAP is not the only one tackling exposure in the war-torn region. The likes of Microsoft (MSFT:NASDAQ) and the UK’s Aveva (AVV) have also publicly commented on the impact of shutting up shop out there.
Even so, investors took a dim view, marking SAP’s share price more than 4% lower on 21 July to €86.72, more than 30% off the €124 levels at which they began the year.
Yet it is far from all gloom and doom. Highlights of Q2 included continued momentum in cloud revenues, up 24% to €3.1 billion on the back of healthy software-as-a-service demand, while the cloud backlog exceeded €10 billion for the first time, up 25% if we strip out currency fluctuations, to €10.4 billion.
It also reiterated 2022 cloud revenue targets of between €11.5 billion and €11.8 billion, implying growth in the mid-20%.
BUSINESS CRITICAL APPS
SAP has been providing critical business applications for decades, mainly to an army of small and medium-sized enterprises (about 80% of sales). Its vast enterprise resource planning suite includes tools without which businesses simply could not run.
They cover areas such as supply chain management, human resources, customer experience management and analysis, spend intelligence, machine learning-based analytics, and more. There’s also a €4 billion venture capital arm called Sapphire Ventures.
SAP has embraced the cloud for years, but in 2020 it went all-in, unveiling a strategy to migrate its thousands of business clients. The company wants €22 billion cloud revenues by 2025.
