TSX:KXS - Post Discussion
Post by
retiredcf on Jul 21, 2023 9:06am
TD Notes
SAP Q2/23 Read-through
Event
SAP announced its Q2/23 results and updated its 2023 financial outlook. See TD Cowen's report here.
Impact: MIXED for Enterprise Software Coverage
In-line results, minor cloud weakness, but strong backlog growth. Total revenue of €7.5bln was in-line with consensus at €7.6bln and up 8% y/y in cc. Cloud revenue of €3.3bln was up 22% y/y in cc but missed consensus at €3.4bln, driven by greater than expected headwinds to transactional revenues. As a result of the mix shift, full- year cloud revenue guidance narrowed to 23%-24% y/y from 23-26% y/y. Cloud backlog remains strong, growing 25% y/y in cc. Management is not seeing any indication of slowdown in its SaaS or PaaS business and that global demand for digital transformation remains high. We believe this is a positive for enterprise software, contrary to fears of a slowdown in IT spending.
GenAI believed to be transformative. Management sees the GenAI opportunity a key contributor to the doubling of its TAM to US$1tn by 2028, from US$500bln today. GenAI offerings are also expected to command a 30% premium, which will be integrated into its application portfolio. Proprietary data remains key to GenAI differentiation, leveraging the data flow of its 400,000 customers to drive business process automation and workflow improvement.
Kinaxis read-through: slightly positive. We believe that the continued strength in SAP's cloud backlog suggests that Kinaxis could continue to see strength in its SaaS backlog. Management highlighted using AI to drive insights into demand planning, which we believe could drive demand for Kinaxis' platform. We believe Kinaxis is well-positioned to continue delivering strong SaaS growth.
OpenText read-through: mixed. The cloud revenue miss could be indicative of near-term weakness, spurred by lengthening sales cycles. However, the lack of slowdown outside transactional revenues could be positive for OpenText, contrary to recent indicators that IT spending is slowing. We also believe many of OpenText's are considered essential software. SAP's cloud backlog growth of 25% y/y in cc is also supportive.
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