SAP Q3 2018: Cloud revenue up 39%

SAP’s Q3 2018 results show cloud revenue now at 22% of total and indicate momentum. S/4 Hana customers number 9,500

SAP has announced almost €6.02bn in third quarter 2018 revenue, of which €1.304bn was for cloud subscription and support – or 22% of the total.

Total revenue increased 8%, comparing the third quarters of 2017 and 2018, with cloud revenue increasing by 39%.

Bill McDermott, SAP chief executive officer, said in a statement: “SAP is the fastest growing cloud company at scale in the enterprise software applications industry. Our growth drivers are firing on all cylinders – especially SAP C/4Hana and SAP S/4Hana as foundations of the Intelligent Enterprise.”

C/4 Hana is the suite of customer relationship management products the company brought under one umbrella at this year’s Sapphire customer conference. S/4 Hana is the supplier’s full enterprise resource planning [ERP] suite.

Luka Mucic, chief financial officer at SAP, said: “I am proud of SAP’s excellent business momentum: our accelerating cloud growth shows our strategic priorities are exactly on track. Our non-IFRS operating profit was up double digits even with a higher share of cloud and services revenue. As promised, SAP’s business is growing its resilience with a constantly increasing share of more predictable revenue.”

The company announced that growth in new cloud bookings was 36%. However, operating profit was down by 6%, at least by IFRS guidelines.

The supplier stated: “Amid a higher-than-expected share of cloud and services revenue, third quarter operating profit declined 6% year over year to €1.24bn (IFRS) and was up 11% (non-IFRS at constant currencies). The IFRS operating profit was mainly impacted by higher share-based compensation expenses.”

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S/4 Hana has been at the core of the company’s strategy since launch in February 2013. SAP claimed 9,500 customers in the Q3 statement.

Some 50% of the additional customers were said to be net new, but Mucic said, in a financial analyst earnings call, that Q4 would likely see more new customers drawn from the installed base. He also said they expect "roughly half" of the 30,000 customers of SAP’s older ERP system ECC6 to have transferred to S/4 Hana by 2020.

New customers for S/4 in the quarter included Wipro, Bombardier and McKesson, while Osram Continental went live.

The new front-office complement to S/4, branded C/4 Hana, was said, in the quarter, to have “achieved triple-digit growth in new cloud bookings and cloud subscription revenue year-over-year.”

Customer Experience was up 54% to €232m. This business segment encompasses software from the 2013 acquisition of Hybris, as well as from the 2018 acquisitions, with cash software as a service supplier Callidus Software and customer identity management platform provider Gigya.

C/4 Hana suite popular

Giorgio Armani, Dubai Expo 2020, Colgate-Palmolive, HP and Döhler were among those who opted for C/4 Hana suite products in the quarter.

George Lawrie, an analyst at research firm Forrester, commented of C/4 Hana that it is off to a good start. “It is at the heart of SAP’s strategy to integrate back and front office applications, driving agile execution as well as helping create a compelling customer experience,” he said.

“As a result, customer experience revenue increased significantly, which was helped by sophisticated clients like Giorgio Armani and Colgate-Palmolive choosing C/4 in Q3. This is encouraging for other SAP clients on their own journeys to customer centricity.”

SAP Leonardo – the branding used for the supplier’s “digital toolbox” of artificial intelligence, internet of things, advanced analytics and blockchain technologies – was adopted by Deloitte and Chint Group in the quarter, said the supplier.

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