SAP SE has raised its operating profit outlook for the year, bolstered by strong growth in its cloud computing business, as the German software maker pushes ahead with a major restructuring.
The Walldorf-based company reported a 26 percent increase in new cloud computing bookings for the first quarter at constant currencies, picking up speed compared with the fourth quarter of last year in a metric closely watched by analysts.
Activist investor Elliott Management also disclosed that it owns 1.2 billion euros (US$1.3 billion) of common stock and economic equivalents of SAP, saying the stock has been “consistently undervalued” relative to its revenue growth.
SAP yesterday said that it is planning “new initiatives to accelerate operational excellence and value creation,” and that it would brief investors and analysts on those plans during a special capital markets day in November.
The company is to evaluate a share buyback program and focus on “tuck-in” acquisitions.
SAP chief executive Bill McDermott is betting big on the cloud business as a source of future sales growth and has spent more than US$10 billion to buy US cloud computing start-ups Qualtrics International Inc and Callidus Software Inc to better compete with Salesforce.com Inc and Oracle Corp.
“We see years and years of sustained growth in the cloud,” McDermott said in a telephone interview.
SAP’s executive team is putting “total focus” on improving margins in the coming years, he said.
SAP now expects to reach a cloud gross margin of 75 percent in 2023 and increase operating margin by 1 percentage point a year on average.
For this year, the company expects profit to rise as much as 12.5 percent, up from a previous forecast of as much as 11.5 percent.
McDermott is reassigning jobs, training workers and drawing up voluntary leave packages — a program that cost 886 million euros (US$994 million) in the first quarter.
Overall sales grew to 6.1 billion euros, driven by a strong increase in cloud computing revenue.
SAP is dealing with a management shakeup after the April 5 announcement that the president of its cloud computing business, 27-year SAP veteran Robert Enslin, was departing the company.
It was later revealed he had left for Google.
A day earlier, SAP chief technology officer Bjoern Goerke, another cloud computing expert based in the US, penned a blog post saying he was leaving the company he joined as a student in 1988.
Board member Bernd Leukert left SAP in February.
McDermott said there is “reignited passion” in the company and all positions are filled with people of great competence.
SAP yesterday said that uptake of its flagship S/4 Hana software slowed in the first quarter, with the company adding about 400 customers. It said it now has about 10,900 total users.
The software allows businesses to run tasks on their own machines or in a cloud-computing arrangement hosted by SAP or one of its partners.
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