SAP SE (SAPFree Report) reported second-quarter 2021 non-IFRS earnings of EUR1.75 per share ($2.11), up 50% from the year-ago quarter’s levels. The upside can be attributed to strong contribution from Sapphire Ventures.

Total revenues, on a non-IFRS basis, were EUR6.669 billion ($8.035 billion), down 1% year over year (up 3% at constant currency or cc).

Cloud Results

Current cloud backlog — a key indicator of go-to market success in cloud business — increased 17% (up 20% at cc) to EUR7.77 billion.

On a non-IFRS basis, Cloud and software business reported revenues (86.2% of total revenues) of EUR5.75 billion, up 1% year over year (up 5% at cc).

Cloud revenues were EUR2.28 billion, up 11% year over year on a non-IFRS basis (up 17% at cc).

Software licenses and support revenues totaled EUR3.47 billion, down 5% (down 2% at cc) year over year. The company further noted that non-IFRS software licenses revenues of EUR0.65 billion, declined 16% (down 13% at cc) year over year.

Cloud revenues — related to Software as a Service (SaaS)/Platform as a Service (PaaS) — climbed 18% at cc to EUR2.161 billion. Cloud revenues — related to Infrastructure as a Service (IaaS) — rallied 10% year over year at cc to EUR237 million.

Services business (13.8% of total revenues) delivered revenues of EUR920 million, down 11% from the year-ago quarter’s levels (down 7% at cc).

The company has three reportable segments — Applications, Technology & Support (AT&S), Qualtrics and Services. In the beginning of 2021, the Concur segment was dissolved and integrated into the AT&S segment and the Services segment.

AT&S revenues were flat year over year (up 4% at cc) to EUR5.62 billion. Qualtrics segment revenues rallied 25% (up 37% at cc) to EUR211 million. Revenues in the Services segment declined 7% (down 3% at cc) to EUR796 million on a year-over-year basis.

Expanding Clientele Bodes Well

Rise with SAP solution witnessed addition of more than 250 new clients including the likes of Advanced Micro Devices (AMDFree Report) , EBANX, Fujifilm Diosynth Biotechnologies, The Great Eastern Shipping Co., Inchcape, National Basketball Association, among others in the quarter under review. SAP launched Rise With SAP offering in first-quarter 2021.

S/4HANA adoption rallied more than 16% year over year to around 17,000 customers. In the reported quarter, net new customers comprised 50% of additional S/4HANA customers. An increasing number of companies have begun deploying S/4HANA solution in part or entirely in the cloud.

SAP’s clientele continues to expand with the addition of Stanley Black & Decker, ABN AMRO, Coca-Cola FEMSA, Florida Department of Management Services, Keolis Group, Moderna, Molson Coors Brewing, Nationwide Building Society and Roca Sanitario, among others.

Companies like Wales & West Utilities, Bitburger Braugruppe and Weber-Stephen Products went live on SAP solutions, during the reported quarter.

In the quarter under review, Lenovo, NEC, Hilti and Renault selected SAP’s business technology platform that comprises SAP HANA, SAP Data Warehouse Cloud, SAP Cloud Platform, SAP Analytics Cloud, SAP Intelligent Robotic Process Automation and SAP Data Intelligence solutions.

Qualtrics Experience Management solutions were selected by Daikin, Mitsubishi Heavy Industries, Noom, Trivago, and Virgin Cruises, among others, in the reported quarter.

SAP expects its total addressable market to expand by $150 billion and reach $600 billion by 2025.

Margin Details

Non-IFRS gross margin of 73.4% expanded 80 basis points (bps) from the year-ago quarter’s figure.

SAP reported a non-IFRS operating expense of EUR4.748 billion, down 1% from the year-ago quarter’s level (up 3% at cc).

Non-IFRS operating profit of EUR1.922 billion declined 2% on a year-over-year basis (up 3% at cc).

Consequently, non-IFRS operating margin of 28.8% contracted 30 bps on a year-over-year basis. At cc, the figure came in at 28.9% and contracted 20 bps

Balance Sheet & Cash Flow

As of Jun 30, 2021, SAP had cash and cash equivalents of EUR7.764 billion compared with EUR10.332 billion as of Mar 31, 2021.

The company generated EUR686 million of operating cash in the reported quarter compared with EUR3.085 billion in the prior quarter.

Free cash flow came in at EUR403 million compared with previous quarter’s figure of EUR2.848 billion.

2021 Outlook Revised

SAP raised 2021 outlook owing to strength in its new cloud business and expectations of macroeconomic improvement arising from global vaccine rollout.

For 2021, SAP anticipates non-IFRS cloud revenues in the range of EUR9.3-EUR9.5 billion, which suggests an increase of 15-18% at cc. The company earlier had projected cloud revenues between EUR9.2 billion and EUR9.5 billion on a non-IFRS basis, up 14-18% at cc.

Non-IFRS cloud and software revenue is now projected between EUR23.6 billion and EUR24 billion, calling for 2-3% rise at cc. The company earlier had projected non-IFRS cloud and software revenues in the range of EUR23.4-23.8 billion, indicating 1-2% rise at cc.

SAP now projects non-IFRS operating profit at cc in the range of EUR7.95-EUR8.25 billion, indicating flat to down 4% at cc. Earlier, SAP guided non-IFRS operating profit in the range of EUR7.8-EUR8.2 billion, suggesting a decline of 1- 6% at cc.

Zacks Rank & Stocks to Consider

SAP currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector worth considering are NVIDIA (NVDAFree Report) and Zoom Video (ZMFree Report) . All the stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The long-term earnings growth rate for NVIDIA and Zoom Video is currently pegged at 17.6% and 15.6%, respectively.

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