Is SAP's Cloud Strategy Heading in the Right Direction?
SAP SE SAP has been putting in extensive efforts to grow its cloud operations and boost its overall performance. The company expects to achieve €22 billion in cloud revenues by 2025 as announced at its third-quarter 2020 earnings results.
The company’s efforts have received a major push with the launch of “Rise with SAP” solution. This solution helps companies to transform their business processes and operations to become more nimble, digital and intelligent. It includes a set of pre-configured, industry-specific templates and best practices for implementing SAP software as well as a comprehensive set of services and support to help companies successfully adopt and leverage the technology.
The RISE with SAP solution continues to gain significant traction and will aid the company drive its market share in the cloud enterprise resource planning or ERP solutions’ space.
In the fourth quarter of 2022, the solution was adopted by clients, including Al-Futtaim Group, City of Vancouver, ExxonMobil, Fujitsu Limited, German Football Association, Imperial Brands, Kanton Aargau, Lockheed Martin, Merck KGaA, Munich Leukemia Laboratory, Lenovo, Lumen Technologies, Natuzzi, PETRONAS, Port of Rotterdam, Renault Group, Swarovski, Warsteiner Brauerei and ZF Friedrichshafen AG.
SAP SE Price and Consensus
SAP SE price-consensus-chart | SAP SE Quote
RISE with SAP will aid the company to boost the uptake of its cloud-based solutions, such as SAP S/4HANA, by providing customers with more options for implementation and support from certified partners.
The company’s ongoing restructuring plan is expected to better align its operating models and go-to-market approach with its accelerated cloud transformation. As part of increasing focus on cloud operations, SAP recently announced that it has agreed to sell its entire stake in Qualtrics to Silver Lake and Canada Pension Plan Investment Board. SAP had acquired Qualtrics in 2019.
The stake sale transaction has been approved by the Qualtrics board, including a committee of independent directors and the SAP Executive and Supervisory Boards. The transaction, subject to customary regulatory clearances, is expected to close in the second half of 2023. SAP will be presenting Qualtrics as a discontinued operation while reporting its first quarter results.
Given the continued business momentum, the company provided strong outlook for 2023. SAP anticipates cloud revenues in the range of €15.3-€15.7 billion, suggesting an increase of 22-25% at cc for 2023.
However, a weakening IT-spending environment coupled with global macroeconomic turmoil and geopolitical instability in Europe create major headwinds.
SAP currently carries a Zacks Rank #3 (Hold).
Stocks to Consider
Some better-ranked stocks in the broader technology space are Arista Networks ANET, Perion Network PERI and Pegasystems PEGA, each presently sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Arista Networks’ 2023 earnings is pegged at $5.85 per share, rising 10.9% in the past 60 days. The long-term earnings growth rate is anticipated to be 14.2%.
Arista Networks’ earnings beat the Zacks Consensus Estimate in the last four quarters, the average being 14.2%. Shares of ANET have increased 18.2% in the past year.
The Zacks Consensus Estimate for Perion’s 2023 earnings is pegged at $2.69 per share, rising 16% in the past 60 days. The long-term earnings growth rate is anticipated to be 25%.
Perion’s earnings beat the Zacks Consensus Estimate in all the last four quarters, the average being 31.7%. Shares of PERI have increased 59.1% in the past year.
The Zacks Consensus Estimate for Pegasystems’ 2023 earnings is pegged at $1.35 per share, rising 66.7% in the past 60 days.
Pegasystems’ earnings beat the Zacks Consensus Estimate in two of the trailing four quarters, the average surprise being 11.2%. Shares of PEGA have declined 39.1% in the past year.
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