SAP Profit Misses Analyst Estimates as Growth Trails Oracle
April 28, 2011, 3:34 PM EDTBy Ragnhild Kjetland and Cornelius Rahn
(Updates with closing share price.)
April 28 (Bloomberg) -- SAP AG, the largest maker of business-management software, reported first-quarter profit that missed analysts’ estimates and trailed growth at rival Oracle Corp., sending the stock down the most in 1 1/2 years.
Operating profit based on non-IFRS accounting rules rose 26 percent to 779 million euros ($1.2 billion), Walldorf, Germany- based SAP said today. The figure missed the 833 million-euro average estimate of 14 analysts compiled by Bloomberg. Software and related services revenue gained 20 percent to 2.34 billion euros, trailing the 2.46 billion-euro average estimate.
SAP fell 5.7 percent in Frankfurt. Profit were weighed down by costs linked to last year’s acquisition of Sybase Inc. Led by co-Chief Executive Officer Bill McDermott and Jim Hagemann Snabe, SAP is banking on increased use of mobile technology and computing over the Internet to boost sales and hold back Oracle. The U.S. rival last month predicted profit that topped estimates and has stepped up spending on hardware and the programs needed to organize data.
“The market was in general expecting higher revenue numbers and in particular in terms of subscriptions, which were flat year-on-year,” said Jonathan Crozier, an analyst at WestLB AG in London who has an “add” recommendation on SAP. “What we’re seeing is 50 percent disappointment with the results and 50 percent profit taking. The shares were ready for any excuse to take profits.”
Sybase Costs
SAP lost 2.59 euros to 43.09 euros at the 5:30 p.m. close of trading in Frankfurt. That’s steepest decline since October 2009, paring the stock’s gain this year to 13 percent. Oracle is also up 13 percent this year.
Reported net income gained 4.1 percent to 403 million euros, SAP said. Non-IFRS profit rose 20 percent to 528 million euros.
The German company, which bought database and mobile- computer software maker Sybase last year, had acquisition- related charges of 112 million euros.
Total sales rose 21 percent to 3 billion euros, in line with estimates by analysts. Software licenses, an indicator of future sales, grew 26 percent.
Last month, Oracle reported a 29 percent jump in new software licenses for the quarter through February. The Redwood City, California-based company posted a 78 percent jump in net income, fueled by demand for its databases.
SAP reiterated its forecast for 2011 non-IFRS software and related service revenue to increase by a range of 10 percent to 14 percent at constant currencies. Non-IFRS operating margin will gain as much as 1 percentage point, it said.
20 Billion Euros
Snabe said he’s confident new technologies will help SAP reach annual sales of 20 billion euros, with a 35 percent operating margin “by the middle of the decade.”
“If you look a year back, we didn’t have Sybase, and therefore companies were not even discussing mobile with SAP,” Snabe said on a conference call. “We have a pipeline today that is more than 10 times what they had, so you really see the synergies between these two assets.”
SAP has a “triple-digit-million euro pipeline” for both the in-memory technology product Hana, and for the mobile platform from Sybase, the executive said. In on-demand computing, SAP will probably reach 1,000 customers ahead of plan, he said.
“They’re clearly staying on the growth track even if earnings fell short with regard to top line and profit,” said Marco Guenther, an analyst at Hamburger Sparkasse in Hamburg who recommends buying the stock.
Stock-Based Compensation
SAP had costs of 52 million euros in stock-based compensation to SAP employees and executives, including to former CEO Leo Apotheker.
Software and related services sales in the Americas grew 29 percent. Asia-Pacific was up 28 percent, while Europe, Middle and Africa gained 13 percent. Growth in Germany, at 7 percent, was the weakest.
“We are spot-on for the rest of the year and are delivering exactly as expected,” Snabe said in a Bloomberg Television interview.
In the first quarter, SAP announced a deal with HSBC Holdings Plc to create software that connects enterprise customers to the bank, and luxury-goods maker Salvatore Ferragamo Italia SpA agreed to use SAP to streamline global business processes from financials to the point of sales in retail stores.
SAP provides software for the order fulfillment behind Apple Inc.’s iTunes download system and its software is used by companies for payroll management.
The company is “looking for opportunities” to fuel growth, though it won’t make an acquisition just to increase market share, Snabe said in an April 12 interview.
--With assistance from Mark Barton in London. Editors: Kenneth Wong, Simon Thiel
To contact the reporters on this story: Ragnhild Kjetland in Frankfurt at rkjetland@bloomberg.net; Cornelius Rahn in Frankfurt at crahn2@bloomberg.net.
To contact the editor responsible for this story: Kenneth Wong in Berlin at kwong11@bloomberg.net
