TD's Flash Notes SAP Expects Cloud Demand to Accelerate
Event
SAP pre-announced its Q3/21 results and revised its 2021 financial outlook last night.
Impact: SLIGHTLY POSITIVE for Enterprise Software coverage
Strong cloud revenue and backlog growth. SAP generated total revenue of
€6.84bln, in line with consensus, while operating profit of €2.10bln was ahead of
consensus at €1.99bln. Total revenue was up 5% y/y on a constant currency (cc)
basis, which is an acceleration from last quarter's 3% y/y in cc. We believe this
suggests that business activity continues to pick up. Cloud revenue was up 20%
y/y in cc, while cloud backlog grew 22% y/y in cc and 5% q/q, which was driven
by an acceleration in demand across its cloud portfolio. Management also slightly
increased its 2021 cloud revenue outlook to €9.4-€9.6bln, from €9.3-€9.5bln. We
estimate that the midpoint of SAP's 2021 cloud revenue guidance implies ~32% y/y
cloud revenue growth in Q4/21. Management's outlook assumes that the COVID-19
impact will continue to recede as vaccines roll out.
Kinaxis read-through: slightly positive. We believe that SAP's strong cloud
backlog growth reflects positively on Kinaxis. Last quarter, management noted that
the pipeline continued to grow q/q, particularly in the life sciences, CPG, and A&D
verticals. We believe that SAP's strong cloud performance and outlook suggests that
Kinaxis could also continue to see strong demand for its supply chain solutions.
OpenText read-through: slightly positive. The strong cloud demand environment
also suggests that OpenText could see solid demand for its cloud portfolio. SAP's
software licenses revenue came in at ~€660mm, down 8% y/y in cc, which is an
improvement from last quarter's decline of 13% y/y in cc. We expect OpenText to
deliver $63.2mm of software licenses revenue, down 7.7% y/y in Q1/F22, consistent
with SAP's performance this quarter.