SAP Q2 2020 results: SAP partially divests Qualtrics as positive results posted against Covid crisis

SAP has announced a positive set of second-quarter 2020 results, hot on the heels of a declaration that it will spin out online survey business unit Qualtrics by way of an initial public offering in the US

SAP has announced a broadly positive set of second-quarter results against the background of the Covid-19 crisis, hot on the heels of a declaration that it will partially divest itself of Qualtrics by way of an initial public offering.

The supplier posted €6.743bn in revenue for the second quarter, of which €2.04bn was cloud, 30% of the total.

Cloud revenue was 21% up on the same year-ago quarter, and operating profit, at €1.28bn, was 55% up.

SAP announced 500 new customers for its flagship enterprise resource planning (ERP) system, S/4 Hana, taking the total to 14,600 customers, of which it said 7,400 are live. In the second quarter, more than 37% of the new customers were also new to the supplier.

Among those cited as new customers for S/4 were BNP Paribas and Deutsche Börse. And for the cloud-delivered version of the product, SAP cited E.ON, SAP consultancy Rizing and Italian construction engineering company Trevi Finanziaria Industriale.

But it was the announcement, on Sunday 26 July, of the proposed spinning out of Qualtrics, a customer and employee survey company that SAP acquired in late 2018 for $8bn, that caught the eye. This, at 20 times expected 2018 revenue, was the last acquisition that Bill McDermott made before stepping down as CEO in October 2019. And so, to partially divest is also the first major strategic decision that new CEO Christian Klein has made.

In this year’s second quarter, Qualtrics revenue was up by 34% to €168m, with 11,800 customers.

SAP has announced its intention to take Qualtrics through an initial public offering (IPO) in the US. It will remain the majority owner of the company.

“SAP’s acquisition of Qualtrics has been a great success and has outperformed our expectations with 2019 cloud growth in excess of 40%, demonstrating very strong performance in the current setup,” said Klein.

“As Ryan Smith [Qualtrics founder and CEO], Zig Serafin [chief operating officer] and I worked together, we decided that an IPO would provide the greatest opportunity for Qualtrics to grow the experience management category, serve its customers, explore its own acquisition strategy and continue building the best talent. SAP will remain Qualtrics’ largest and most important go-to-market and research and development partner while giving Qualtrics greater independence to broaden its base by partnering and building out the entire experience management ecosystem.”

Regarding the second-quarter results, Klein said: “This quarter demonstrated that our Intelligent Enterprise strategy clearly resonates with customers around the world. More than ever, the pandemic has proven that digitisation is no longer an option but a must-have to withstand challenging times and to achieve desired business outcomes. We will continue to invest in innovative offerings for our customers to drive business transformations and run complex business processes. We also aim to expand the ecosystem on our business technology platform to complement our solutions and foster growth.”

SAP’s chief financial officer, Luka Mucic, added: “We were happy to see such a strong sequential improvement in software licence revenue and a robust margin expansion. Our broad solution portfolio, unmatched industry and geographic diversification, coupled with our strong base of more predictable revenue, have allowed us to manage the Covid-19 crisis this quarter. With our investments in strategic growth areas, we are confident we will not only weather the crisis but emerge even stronger.”

Germany-headquartered SAP seems to have had a good Covid crisis and made a positive contribution in the form of the Corona Warning App, which it developed with Deutsche Telekom. According to the supplier’s quarterly results statement, the app went live in less than 50 days and has been downloaded more than 16 million times to date.

Qualtrics’ “back-to-business solution” is also said to be helping many US states and communities restart their economies.

SAP’s flagship ERP system, S/4 Hana has also been enjoying steady adoption in the company’s homeland, according to joint research by the German-speaking SAP User Group, DSAG, and the American SAP User Group.

According to the survey, the majority of DSAG members (70%) and ASUG members (55%) are in the process of or plan to implement S/4 Hana in the future, while 12% (DSAG) and 16% (ASUG) are already live.

The most commonly used system among members of both SAP user groups is still SAP ECC 6, with 84% of DSAG respondents and 78% of ASUG respondents still on that system. 

The German SAP customers’ relatively positive attitude to S/4 Hana contrasts with recent analyst research conducted on behalf of business applications supplier IFS, according to the latter’s CEO Darren Roos, in an interview with Computer Weekly. In that research, some 50% of SAP customers said they had no intention of moving from SAP’s older ERP system ECC 6 to S/4 Hana.

The UK and Ireland SAP User Group also revealed a similarly lukewarm response to S/4 Hana among customers towards the end of last year. In a survey published at the user group’s annual conference, 20% of users said they would not consider S/4 Hana as their next ERP step, up from 14% in 2018.

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