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 SAP's mid-term outlook issued on Friday follows strong results for
2015 and a somewhat cautious outlook for this year as the company
adapts to growing demand for cloud software paid by subscription
rather than high-margin packaged products on which it has long
counted.
Shares of Europe's largest software maker slipped 2 percent at 0955
GMT making it the worst performer in the STOXX Europe 600
Technology, which was up 1.5 percent. The new outlook implies an
operating margin around 29.5 percent, well below the historic
margins 35 percent SAP once targeted when it focused mainly on
packaged software.
Analysts had expected a slightly slower decline in operating margin
to 30 percent in 2017 from 30.5 percent in 2015.
Chief Financial Officer Luka Mucic said operating margin trends
would depend on how fast the cloud business grew relative to the
classic packaged software business but would drive higher profit
levels over the long term.
"There is no structural reason why operating margins of our cloud
business should not exceed those of our classical on-premise
business," Mucic told journalists on a conference call, but
emphasized this was unlikely to happen until after 2020.
Cloud-based software subscriptions incur smaller upfront license
fees, and are thus less profitable in the short term, but SAP is
counting on ongoing subscription payments to bring in higher
revenues, and eventually higher profits, over time.
SAP is still growing faster than competitors Oracle and IBM, all of
which must boost Internet-based sales to head off cloud-based rivals
Salesforce.com, Workday and Amazon.com's Web services unit.
OUTLOOK "NOT SPECTACULAR"
Last week, the company outlined better than expected 2015 results,
fueled by strong year-end renewals by existing software license
customers, but cautioned that 2016 profit would be at the low end of
expectations.
It forecast 2016 operating profit, excluding special items, would be
between 6.4 billion and 6.7 billion euros ($7.0-7.3 billion).
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The company said it now expects 2017 revenue in the range of 23.0
billion to 23.5 billion euros, at or above the average analyst
expectation of 23.01 billion, according to Thomson Reuters I/B/E/S
data.
SAP said it is now targeting 2017 operating profit in the range of
6.7 billion to 7.0 billion euros. The midpoint of that range, 6.85
billion, is slightly below the 6.905 billion mean estimate among
analysts, according to Thomson Reuters data.
On the same basis, a year ago, SAP had forecast total 2017 revenue
of between 21 billion and 22 billion euros and operating profit in a
range between 6.3 billion and 7.0 billion euros.
"The 2017 forecast is not spectacular: SAP expects what the
consensus expects'" said one analyst at a German bank, who asked not
to be named.
SAP's newer cloud products include software used to manage corporate
travel, procurement and temporary workers. Its software is relied
upon by many of the world's biggest multinational firms to manage
cross-border business operations.
(Additional reporting by Ilona Wissenbach; Editing by Keith Weir)
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