SAP Expects Cloud Adoption to Accelerate in 2021
Event
SAP pre-announced its Q4/20 results and 2021 financial outlook last night.
Impact: SLIGHTLY POSITIVE read-through for enterprise software coverage.
Business activity remained consistent, despite reinstatement of lockdowns across geographies. SAP's revenue of €7.54bln was in line with consensus, but operating profit of €2.77bln was ahead of consensus at €2.65bln. Total revenue declined ~2% y/y on a constant currency (cc) basis, relatively consistent with last quarter's flat y/y cc performance. We believe that the consistent results this quarter suggest that customer demand remained resilient, despite new lockdown measures. Cloud revenue grew 13% y/y cc, while cloud backlog grew 14% y/y cc in the quarter. This was driven by solid demand for its ecommerce, digital supply chain, human capital management (HCM), and cloud platform solutions. Moreover, management expects customers' cloud migrations to accelerate in 2021, supporting the 2021 outlook for cloud revenue to grow by approximately 12-17% y/y. Management's outlook assumes that the pandemic will ease as vaccines are rolled out globally, driving an improvement in the demand environment in H2/21.
Kinaxis read-through: slightly positive. SAP continued to see strong demand for its digital supply chain solutions in both North America and Europe, which reflects positively on Kinaxis. As trade complexities increase and ecommerce accelerates, we believe that companies will look to invest in supply chain solutions that will allow them to rapidly respond to uncertainties. Although Kinaxis continues to experience extended sales cycles in the current environment, we remain confident that Kinaxis will convert its robust pipeline to completed deals.
OpenText read-through: mixed. SAP's software licenses revenue was down 11% y/y cc, an improvement from last quarter's 19% y/y cc decline, as North America and Europe exceeded expectations. Although SAP's license revenue is still declining, it could suggest OpenText's Q2/F21 licenses revenue decline may not accelerate as we had forecast. SAP's strong cloud performance could also reflect well on OpenText's cloud business.
Docebo read-through: slightly positive. SAP noted that its HCM platform saw solid demand in the quarter. We believe that this is potentially positive for Docebo, suggesting that the spending environment for HCM solutions, which include learning management systems, could remain strong.