SAP Q2 sales rise; cloud revenue jumps 129%

German business software maker SAP reported mixed quarterly results on Tuesday as revenues topped expectations due to a surge in newer, lower-margin cloud software delivered via the Internet, pushing down profit to the very low end of forecasts.

SAP said second-quarter operating profit, excluding special items, rose 13 percent to 1.39 billion euros ($1.50 billion), the bottom of analyst estimates ranging from 1.39 billion to 1.45 billion euros in a Reuters poll.

In constant terms, excluding the effect of translating other currencies into the euro, operating profit rose just 1 percent.

Europe’s largest software maker reported total revenue of 4.97 billion euros ($5.38 billion), up 20 percent from 4.15 billion euros, or 8 percent excluding currency effects. Analysts were looking for revenues of 4.81 billion to 4.96 billion euros.

Operating margin dropped to 28.0 percent from 29.8 percent a year ago. The decline reflected increased investments in SAP’s newer cloud-based software services, where revenues from new sales come later in the form of subscription payments.

A Frankfurt trader said software licences and profit margins were among the factors likely to disappoint investors. “Expect a volatile but at the end negative share price reaction,” he said.

SAP is battling alongside established U.S. software makers such as Oracle, IBM and Microsoft to boost Internet-based software sales and fend off pure cloud-based rivals Salesforce.com, Workday and, less directly, industry pacesetter Amazon.com’s web unit.

Salesforce.com in May raised its revenue forecast for the full year, after the cloud software company reported a profit for the first time in seven quarters.

SAP’s cloud subscription and support revenue from continuing operations jumped 129 percent to 555 million euros from 242 million euros in the second quarter of last year. New cloud bookings, the key measure for SAP’s sales success in the cloud, increased 162 percent to 203 million euros.

New cloud bookings for Customer Engagement and Commerce once again saw strong triple digit growth, the company said.

On the same basis, revenues from its mainstay software licence business rose 13 percent to 3.51 billion euros from 3.12 billion euros. Without currency effects, software licenses grew 3 percent.

“Our second quarter growth in new cloud bookings was significantly higher than in the first quarter. This momentum showed across our entire cloud and business network portfolio,” said SAP CFO Luka Mucic. “Our operating profit performance is beginning to reflect the business transformation we initiated to make SAP ready for the future. We are on track to achieve our full year business outlook.”

The company also witnessed surge in number of SAP S/4HANA customer. This quarter, the number of HANA customers surpassed 7,200 compared with 3,600 a year ago. S/4HANA’s robust early traction – more than 900 SAP S/4HANA customers by the end of the second quarter compared to over 370 at the end of the first quarter.

Total revenue in the SAP Business Network segment was 400 million euros in the second quarter, a year-over-year increase of 194 percent.

SAP stuck to its outlook for the full 2015 year for non-IFRS operating profit of between 5.6 billion euros and 5.9 billion euros at constant currencies, which represents flat growth to a rise of as much as 5 percent from 5.6 billion euros last year.

Based on the strong momentum in SAP’s cloud business, the company expects full-year 2015 non-IFRS cloud subscriptions and support revenue to be in a range of 1.95 - 2.05 billion euros at constant currencies. Full year 2015 non-IFRS cloud and software revenue are expected to increase by 8-10 percent at constant currencies.

With inputs from Reuters