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Thứ Sáu, 21 tháng 2, 2014

SAP AG (ADR) (SAP) news: SAP Price Estimate Revised To $95: Expanding ... - Seeking Alpha

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Quick Take

  • SAP AG recently reported fiscal 2013 results that were in line with its guidance from a year ago.

  • Cloud revenues posted 32% organic growth, while revenues for the HANA platform marginally fell short of its guidance due to extreme currency volatility during H2FY13. However, constant currency revenues for HANA were in line with SAP’s guidance.

  • Despite its decent performance in FY2013, SAP stock lost almost 5% in value in 2014.

  • We have updated our price estimate for SAP from $81 to $95, with top line driven by an expansion in its addressable market and margins expanded by its move to the cloud.

Fiscal 2013 results for Enterprise software giant SAP AG (SAP) have been impressive from a cloud perspective. The division reported a triple digit growth in total cloud revenues in 2013, with a strong double digit growth in its organic cloud business. The HANA platform, which is key to SAP’s long term strategy, also witnessed renewed customer interest towards the end of the year, driven by the launch of SAP Suite on HANA offerings. However, the company’s stock has been under-performing other legacy software companies since the beginning of 2014. SAP AG has shed 5% in value compared to 0.74% among other legacy software players such as Microsoft (MSFT), IBM (IBM) and Oracle (ORCL).

Recently, the company held an Investor Symposium where SAP presented deep insights into its strategy for the future. The HANA platform is key to the company’s long term success. In this note, we present various trends that we expect to see from SAP in the future. We have revised our SAP price estimate to $95 following sound fundamentals and strong growth prospects for the company.

Cloud Push Backed By HANA Should Provide Strong Growth

In the recently concluded fiscal 2013, SAP reported cloud subscription and service revenues of $1.3 billion, up 121% from last year’s $586 million. Excluding inorganic growth (most notably its acquisition of Hybris), SAP grew its cloud business 32% on a like-for-like basis between 2012 and 2013. [1] The company has a 32% growth rate forecast going into fiscal 2014 for its cloud business, with a revenue estimate of ~$1.3 billion from cloud subscriptions compared to $1 billion in FY13. [1] Furthermore, the benefits of in-memory computing have provided formidable support to SAP’s HANA platform. Constant currency revenues stood at €664 million for the in-memory platform in 2013, in line with its guidance of €650 million - €700 million.

SAP plans to collapse its entire service offerings across five different market categories, namely cloud, mobile, analytics, applications and database, onto the HANA platform. This considerably simplifies the customer’s IT landscape and reduces its data footprint, consolidating applications and data that in other architechtures reside on multiple systems. Due to its in-memory technology, SAP HANA allows for the real-time analysis of work-loads, eliminating the read-write cycles key to traditional data analytic implementations. Given the current focus on Big Data analytics, HANA is generating significant momentum for the company, both in on-premise and Cloud implementations.

In short, HANA erases multiple copies of data stored across a company’s ERP, CRM and SCM systems onto a unified integrated platform where an entire data set can be loaded from disk storage into memory. Going forward, businesses would face enormous pressure in tackling the growing total cost of ownership (TCO) of dedicated hardware systems for transactional and analytic processing. And it is fully integrated into SAP’s alternative on-premise and Cloud solutions to accommodate the full range of requirements in the Enterprise marketplace. We plan to analyze this in greater detail in future articles.

Additionally, SAP could look to focus more on predictive analytics solutions by completely integrating its latest acquisition, KXEN, within this offering. [2] KXEN provides predictive analytics solutions to make better decisions on petabytes of big data for many companies such as Bank of America, CBS Interactive, ING Direct, Meredith Corporation and Vodafone. Given the exponential increase in data generated and stored globally in coming years, the integration of KXEN and HANA creates a cohesive in-memory predictive analytics platform that would help reduce the cost of lead generation from this expansion in big data for SAP’s and KXEN’s customers, irrespective of the industry it operates in. We believe SAP’s success in the future depends on businesses adopting the HANA platform for both new and ported implementations. We expect the company to aggressively expand its offerings on the platform going forward to drive revenue growth.

Competitive Pressure From Pureplay Cloud Players Short-lived

SAP’s market share in the Enterprise Resource Planning (ERP) and Customer Relationship Management (CRM) market globally has shrunk since 2008 due to the rise of pureplay cloud service providers such as Salesforce, Workday and Netsuite. According to Gartner, SAP’s CRM market share has decreased from a commanding 25.5% in 2007 to 12.9% by 2012. [3] [4] Salesforce has dominated the global CRM market in recent times with its on-demand CRM offering. Similarly, Workday and Netsuite have strong on-demand SaaS offerings in the Human Capital Management (HCM) and ERP space. These players have enjoyed strong top line growth since 2008 due to a variety of factors listed below, which contributed to an inflation in their market share.

Post the recessionary period of 2008-09, businesses chose to cut costs by collapsing their IT hardware infrastructure on SaaS providers and consuming software as a service instead of the usual on-premise model. This resulted in a rapid expansion in the customer roster for these cloud players, driven by small and medium enterprise businesses. Additionally, the lack of strong competition from legacy software companies such as SAP, Oracle, Microsoft and IBM in the cloud services space during the 2008-09 period has contributed to ballooning revenue growth rates for these companies.

However, we expect this expansion to stay tempered going forward as these legacy software players begin their offering cloud-based application deployment models. While the move to cloud expands the addressable market for legacy software players, the addressable market for pureplay cloud players has less upside for the pure plays. SAP estimates to double its addressable market from $110 billion in 2010 to $230 billion by 2015, and increase to $350 billion by 2020, with growth in cloud, mobile and database technology businesses. [5] [6] This huge increase in its addressable market should present strong revenue generation opportunities for SAP. We believe SAP would begin grabbing lost market share from these cloud players in the years to come with a strong and aggressive move to cloud through the HANA platform.


  1. SAP AG Management Discusses Q4 2013 Results – Earnings Call Transcript, Seeking Alpha, January 2014

  2. SAP Extends the Power of Predictive Analytics to Unlock Big Data With Acquisition of KXEN, SAP Newsroom, September 2013

  3. Gartner Says Worldwide CRM Market Grew 12.5 Percent in 2008, Gartner Research, July 2009

  4. Gartner Says Worldwide Customer Relationship Management Software Market Grew 12.5 Percent in 2012, Gartner Research, April 2013

  5. SAP AG Investor Presentation Debt Investors Conference Call, SAP Investor Relations, July 2013

  6. SAP Investor Symposium, SAP Investor Relations, February 2014

Disclosure: No positions

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