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SAP's Q3 Preliminary Results Impress Even as McDermott Exits

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SAP SE Revenue (Quarterly)

Growth in Cloud Business Bodes Well

New cloud bookings advanced 38% (33% at cc) to €0.57 billion. Excluding bookings from IaaS (or Infrastructure-as-a-Service), new cloud bookings were up 50% year over year. The company inked a major cloud deal that raked in growth of 17% points to new cloud bookings.

On a non-IFRS basis, Cloud and software business reported revenues of €5.65 billion, up 13% year over year (up 10% at cc). The business contributed 83% to total revenues.

Cloud revenues came in at €1.81 billion, up 37% year over year on a non-IFRS basis (33% at cc). Software licenses & support reported revenues of €3.84 billion, up 4% (up 1% at cc) year over year.

S/4HANA adoption rose 25% year over year to nearly 12,000 customers. The company added 500 new customers in the third quarter.

Non-IFRS Margin Details

Cloud gross margin of 69% expanded 540 basis points (bps) from the year-ago quarter’s figure.

Operating profit of €2.09 billion grew 20% on a year-over-year basis (up 15% at cc).

Operating margin of 30.6% expanded 170 bps year over year.

Reiterates 2019 View

SAP anticipates upbeat pipeline and momentum in cloud to continue through 2019. Non-IFRS cloud revenues are expected in the range of €6.7-€7.0 billion, up 33-39% at cc.

Non-IFRS cloud and software revenues are anticipated between €22.4 billion and €22.7 billion, up 8.5-10% at cc.

Additionally, non-IFRS operating profit for 2019 is estimated in the range of €7.85-€8.05 billion. This suggests year-over-year growth of 9.5-12.5% at cc.

For 2019, the company projects total revenues to report robust growth at a lower rate than increase in operating profit.

Guidance for 2020

For 2020, SAP projects non-IFRS cloud revenues in the range of €8.6-€9.1 billion. Non-IFRS total revenues are expected in the range of €28.6-€29.2 billion.

Notably, the company envisions non-IFRS operating profit in the band of €8.8-€9.1 billion.

2023 Outlook

SAP provided outlook for 2023 as well. The company continues to expect non-IFRS total revenues to grow significantly and exceed €35 billion.

SAP anticipates non-IFRS cloud subscription and support revenues to more than triple over 2018-2023. Moreover, the company projects non-IFRS cloud gross margin to hit 75%.

Zacks Rank & Stocks to Consider

Currently, SAP carries a Zacks Rank #3 (Hold).

Some other top-ranked stocks in the broader technology sector are Alteryx AYX, Synopsys SNPS and Keysight Technologies KEYS, each flaunting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Alteryx, Synopsys and Keysight is currently pegged at 17.62%, 12% and 10%, respectively.

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Click to get this free report SAP SE (SAP) : Free Stock Analysis Report Synopsys, Inc. (SNPS) : Free Stock Analysis Report Keysight Technologies Inc. (KEYS) : Free Stock Analysis Report Alteryx, Inc. (AYX) : Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research