Clear to cloudy
SAP released preliminary results for the first quarter of 2021 (Jan. 1-March 31) back in early April, following an initial review. SAP posted significant growth in new cloud business and said it had a strong start with its "Rise with SAP" offering, which is designed to help customers drive S/4 Hana transformation in the cloud.
Rise is a single-contract offering designed to provide a path to the intelligent enterprise for any existing SAP customer, regardless of starting point or complexity. Subscription-based offerings have a single responsible contractor for service level agreement (SLA), operations and support, which could further increase SAP revenue but leaves many partners in the dark.
From SAP's perspective, this holistic approach is designed to help companies fundamentally change their business processes. It goes beyond a technical migration to the cloud to enable continuous transformation.
"We are experiencing very strong growth in all of our applications and we are only just beginning to do so", SAP CEO Christian Klein said when presenting the Q1 figures. "Our new Rise with SAP offering will be instrumental in accelerating our customers' business transformation with our platform. Together with our unique network of more than 22,000 partners and a strong innovation pipeline for the year, our strategy is right on track to deliver robust cloud growth."
Software license revenue delivered strong double-digit growth on a constant currency basis. Although global travel restrictions continued to weigh on Concur's business, SAP cloud revenue posted robust growth of 13 percent on a constant currency basis in the first quarter.
Cloud revenue from SAP's SaaS/PaaS offerings, which are not part of Intelligent Spend, grew 24 percent on a constant currency basis. SAP expects the strong development in new cloud business to further accelerate cloud revenue growth in the future.
Luka Mucic, SAP CFO, confirms: "The first quarter of 2021 was unique in many respects. We had the highest growth in five years in order intake for the cloud business and software licenses and saw the strongest increase in operating profit, non-IFRS, and operating margin, also non-IFRS, in ten years. In the medium term, SAP's accelerated transition to the cloud business will accelerate revenue growth and provide our business with significantly more resilience and planning certainty."
During the Corona crisis, SAP is taking care of existing customers with a strategy that allows for integrated virtual sales and remote implementations. And SAP says it continues to exercise cost discipline in hiring new employees and short-term adjustable expenses, while taking advantage of savings opportunities such as reduced business travel, lower building costs and virtual events.
The prior year included costs of approximately 36 million euros in the wake of the cancellation of the annual Sapphire in-house trade show and other customer events, as well as travel costs due to normal business travel patterns. Together with the strong sales development, these factors resulted in a significantly higher operating profit, non-IFRS as well as currency adjusted, and a significantly higher operating margin, both well above market expectations.
SAP has thus raised its outlook for the full year 2021: This reflects the strong development in new cloud business, which is expected to further accelerate cloud revenue growth. SAP continues to expect a decline in software license revenue for the full year as more customers are expected to opt for the Rise subscription offering to handle their core business-critical processes.
This outlook also further assumes that the corona crisis will slowly subside as vaccination programs progress worldwide, so global demand could gradually improve in the second half of 2021.
