Clouds ahead for cloud services?
German tech giant SAP announced results over the weekend that sent the stock plummeting more than 20 percent in intraday trading (and to its worst day of trading in decades) — and also presaged tough sledding ahead for corporate spending for other tech firms reliant on the cloud (especially private and hybrid).
Total sales were off by 4 percent year on year to EUR6.5 billion (roughly $7.6 billion), while the Street had been at about EUR6.8 billion. Overall cloud and software sales slipped 2 percent. Only the pure cloud segment saw gains, adding 11 percent year on year to just under EUR2 billion.
And it was the outlook that rattled investors, as the company lowered guidance for the remainder of the year — where cloud revenues may come in at EUR8 billion to EUR8.2 billion in 2020, down from the EUR8.3 billion to EUR8.7 billion range that had been estimated.
Observers will have to wait a while for growth to return to robust levels. Management said on the post-earnings call with investors that growth will be “muted” through 2022, after which tailwinds should pick up. But goals that had been in place for 2023 are being moved to 2025. Those goals should be realized as more ERP workloads are moved to the cloud, according to commentary on the earnings call — but the transition also is one that pushes revenues and profits to future periods. CEO Christian Klein noted, though, that expanding growth in the cloud will expand the percentage of revenue that is more predictable to 85 percent.
In the question and answer period, when asked about the transition on the part of enterprises (especially larger ones) to the cloud, management said supply chains have been heavily disrupted and running entirely on their own data sets (on premise) do not create resiliency.
Klein said that “fundamental changes” wrought by the pandemic have brought its corporate customers to an “inflection point.” He said corporates are experiencing “real issues.”
Drilling down into regional activity, cloud and software revenues were flat in Americas, measured in constant currency, and up low single-digit percentages elsewhere.
The pandemic has been dragging on investments from companies across verticals as they grapple with the continued economic fallout of shuttering and shelter in place rules. In some regions, lockdowns have been mandated again, which has led to dampened demand. That was especially true for Concur, based in the U.S., which is focused on travel and expense management. The company does not expect to see a meaningful return to growth in business travel related revenues for the remainder of the year.
Beyond the travel and expense segment, CFO Luka Mucic said reopenings of the company’s global training centers have been impacted, and so revenues in this segment have been flat year over year.