SAP AG (SAP): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report
Summary:
Continuing with its string of earnings beats, SAP reported that fourth-quarter 2014 earnings exceeded both the Zacks Consensus Estimate and the year-ago figure, riding on the SAP HANA growth platform. Moreover, SAP's Concur acquisition during the quarter promises bright growth prospects. Also, the company projects 7x growth in the cloud to achieve its revenue target of 28 billion by 2020. However, declining operating profit, unfavorable currency translations and high competition in the IT services industry continue to be concerns for the company. Hence, we are maintaining our Neutral recommendation.
Overview:
Headquartered in Walldorf, Germany, SAP AG (SAP) is one of the largest independent software vendors in the world and the leading provider of enterprise resource planning (ERP) software. Its solutions are designed to cater to the needs of organizations, ranging from small and medium businesses to large, global enterprises. SAP's business suite solutions help clients improve customer relationships, enhance collaboration, and improve efficiencies across their supply chains and business operations. The company reports its revenue under two broad segments:
Software and software-related service revenues (approximately 81.1% of revenues in the year 2013 came from this segment) Software revenue represents fees earned from the sale or license of software to customers. Cloud subscriptions and support revenue relates to contracts which permit the customer to use specific SAP-hosted software functions during the contract period, and which impose significant contractual penalty if the customer cancels the contract or permanently uses the software on the customer's own systems. Support revenue represents fees earned from providing customers with technical support services and unspecified software upgrades, updates, and enhancements.
Professional Services and Other Service Revenue (18.9%) Professional services and other service revenue comprises primarily of consulting and other service revenue. The company generates most of its consulting revenue from the implementation of its software products. Other service revenue consists mainly of revenue from the messaging services acquired from Sybase, as well as training revenue from providing educational services to customers and partners on the use of the company's software products and related topics.
SAP has also built a strong cloud portfolio with SAP HANA. SAP HANA cloud is a platform-as-a-service (PaaS) designed to help customers, independent software vendors (ISVs), and partners rapidly create innovative software applications to succeed in a world increasingly characterized by enterprise mobility, and social and collaborative business networks. SAP has made some strategic acquisitions to strengthen its cloud portfolio, notable among which are Concur, Ariba, BusinessObjects, hybris, SuccessFactors, Sybase and Syclo.
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