SAP Continues To Soar In The First Quarter

April 21, 2014 Dan Burger

SAP‘s star continues to shine brightly after the company’s first quarter financial results revealed respectable revenue growth, while extending cloud successes and building opportune partnerships. All things considered, this was another good report for the German software giant and it occurred during what is traditionally the company’s lightest quarter.

HANA, the in-memory database that serves as the keystone in SAP’s cloud-heavy future, once again is given heaps of credit. What it has done so far, however, pales in comparison to the expectations. For the present, HANA is being lauded for simplifying and improving the company’s flagship ERP system Business Suite. It’s been described as allowing the Business Suite to be smaller by a factor of 7X compared to Business Suite on a traditional relational database management system. It is also bringing glimpses of what applications have the potential to become, particularly in the area of customer service.

During the company’s conference call, the mood was joyous and it was clear that HANA was the star. It was a branding showcase. The question becomes how do you separate HANA from SAP? The answer is you don’t. They’re inseparable.

SAP co-CEO Bill McDermott said it was so and he said so often.

“HANA is SAP. HANA is the bedrock of our brand, of our soul,” the ebullient executive enthused.

When you look at the numbers, the gains are impressive, but it’s also clear that HANA’s best years are ahead. Cloud-based revenue has a ways to go before it matches the numbers licensed software generates. Still, the growth is impressive. Since HANA’s launch in 2011, it has attracted 3,200 customers and SAP is estimating nearly 1,000 SAP Business Suite customers have HANA databases underneath them.

By the Q1 numbers, non-IFRS cloud subscriptions and support revenue increased 38 percent at constant currencies and 32 percent at actual currencies. That’s a step up from $167 million to $221 million.

According to SAP’s figures, the annual cloud revenue run rate is now approaching $1.5 billion. That figure is projected based on revenues generated by subscriptions, support, and cloud-related professional services.

Measuring growth by the data center is another way to gage what’s going on. SAP currently has 14 data centers. It expects to add six locations by the end of the year.

The company also claims more than 900 partners in its cloud ecosystem.

Back to the finance sheet, SAP’s software business declined–not unexpectedly–as the cloud business accelerated. Q1 software licensing revenue dropped from $657 million to $623 million. This is not something new. It’s been showing up on quarterly reports for several quarters. This quarter, however, shows the steepest decline. On the software support side, SAP managed to make the money flow in a positive direction as revenue increased from $2.1 billion to $2.2 billion. SAP reports it software support business enjoys a renewal rate in the high 90 percent range. When software licensing and software-related services are combined, SAP shows a revenue increase, which it prefers over showing a decrease in software licensing.

Overall, total revenue for the quarter rose 6 percent at constant currencies. The current quarter came in at $3.7 billion, while a year ago Q1 put $3.6 billion in the till.

An example of SAP’s strategic partnership maneuvers is the agreement it made with Adobe’s Marketing Cloud, which is making use of the SAP Hybris Commerce Suite and the SAP HANA platform. Keep an eye on this with regard to how Adobe plans to improve customer engagement and customer retention.