SAP Lowers Earnings Outlook
The German software giant expects lower profits as it invests in cloud operations
SAP lowered its earnings outlook for the current financial year on Monday, as it continues to restructure around a push into cloud services, but reported a 15 percent increase in third-quarter net profit boosted by cloud subscription sales.
The company said it expects operating profits for the full year to be between 5.6 billion euros (£4.43bn) and 5.8bn euros, down from a previous estimate of 5.8bn euros to 6bn euros. SAP said it expects short-term pressures on profit margins and sees its revenues being spread out over longer periods of time.
Longer contract periods
Cloud services are typically sold through subscriptions, bringing in revenues over a more extended time period than one-off software licences, where most of the revenue is paid up-front. SAP is also investing in data centres and is restructuring its sales and support operations around its cloud operations, but believes the cloud will bring in a higher proportion of repeat business over time.
The German firm reported 880 million euros in net profits for the period ending 30 September, compared with 762 million euros during the same period last year, higher than expected by analysts.
Bill McDermott, who took over as sole chief executive in May, is simplifying SAP’s range of products and making them easier to use, while fending off competition from Salesforce.com, NetSuite, Workday and Oracle, among others.
The company has supported its cloud drive with several multibillion-euro purchases, including paying $8.3 billion (£5.15bn) last month to by Concur, a cloud-based travel and expense-management softare maker.
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