SAP Revenue Begins to Recover from Pandemic-Fueled Slowdown

(Bloomberg) -- SAP SE, Europe’s largest technology company, reported better-than-expected preliminary results for second-quarter revenue, buoyed by a resumption in software deals in Asia.

Sales climbed 2% to 6.74 billion euros ($7.66 billion) in the quarter that ended June 30, the Walldorf, Germany-based company said Wednesday in a statement. Analysts, on average, estimated 6.61 billion euros, according to data compiled by Bloomberg.

While software license revenues were below normal levels, they recovered more than expected in the most recent period, the company said. SAP said in April that deal activity had effectively ground to a halt because of the Covid-19 pandemic that forced people to remain in their homes to prevent the spread of the virus. The company saw renewed demand in the Asia-Pacific region, where some major economies have started to reopen.

The company’s cloud revenue climbed 21% to about 2 billion euros. SAP reiterated its annual forecast of as much as 28.5 billion euros in adjusted revenue and operating profit of 8.1 billion euros to 8.7 billion euros.

The results “put a bottom” on first-quarter trends and should reassure investors that the company should be able to hit its guidance for the year, Citigroup Inc. analysts said in a note. Analysts at Jefferies said that SAP’s decision to keep 2020 guidance unchanged implies the company sees “a gradually improving demand environment throughout the year.”

Shares rose 5.5% to 137.06 euros at 9:07 a.m. in Frankfurt on Thursday. The stock has gained 14% this year.

“Business activity gradually improved over the course of the second quarter,” the company said in the statement. “Current cloud backlog remained strong with continued high demand for digital supply chain, e-commerce, cloud platform and Qualtrics solutions.”

The better-than-expected results could indicate that SAP’s corporate customers, which had halted large information technology projects during the pandemic, may be feeling more confident as Covid-19 restrictions loosen in many parts of the world.

Tight IT budgets will likely loosen up in early 2021 and demand could return for companies like SAP driven by an aim to improve productivity, Bloomberg Intelligence analyst Anurag Rana said in a note this week. Cloud application providers in particular should see demand “climb sharply” next year after the lockdowns persuade more companies to make their operations digital.

“Demand may return for these products in early 2021, as corporations aim to improve the overall productivity of their finance and other back-office functions. The coronavirus pandemic has shown the importance of cloud-based software products, which we believe will permeate into back-office applications.”

--Anurag Rana, Bloomberg Intelligence

The economic slowdown caused by the pandemic has been a challenge for Christian Klein, SAP’s chief executive officer who is now solo after the departure of his former co-CEO, Jennifer Morgan. The German software maker adopted virtual sales and implementation processes and slowed hiring and other expenses to boost profitability.

Still, the moves helped boost the company’s operating margin by 6.5 percentage points from a year earlier to 19% in the quarter.

©2020 Bloomberg L.P.