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SAP Jumps as Sustained Cloud Growth Prompts Nudges Guidance up Again

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Dhirendra Tripathi

Investing.com – ADRs of SAP (NYSE:SAP) were trading higher by more than 5% in Wednesday’s premarket as the company raised its annual outlook for the third time - albeit modestly - on the back of sustained strength in its subscription business.

In a preliminary update ahead of its full quarterly results, the enterprise software-maker now expects 2021 Cloud and software revenue at 24 billion euros ($27.84 billion) at center of the guidance range, up 3% from its previous estimate of 23.8 billion euro.

Revenue from Cloud-based services is seen at 9.5 billion euros at midpoint, up from 9.4 billion euros given earlier.

The company said the transition to Cloud-based services, accelerated by the pandemic, shows no sign of letting up. Order backlogs for its Cloud services were up 24% at 8.17 billion euro, while backlogs for its flagship S/4HANA service were up 60% to 1.28 billion.

Business software providers have been major beneficiaries of the pandemic, as pressure to optimize business practices has increased and the adoption of hybrid working-from-home models has demanded greater capabilities from business IT systems.

While transitioning to a subscription-based model has hurt the licensing revenues of 'Old Guard' software companies like SAP and IBM (NYSE:IBM), the German company has increasingly compensated for that elsewhere. Total revenue was up 5% in the third quarter, while earnings per share adjusted for various one-off factors rose 2% to 1.74 euros. Reported earnings per share fell 10% from a year earlier to 1.19 euros.

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