The shares of the German software provider collapse


Due to the corona pandemic, SAP customers are increasingly relying on cloud services. On the one hand this is good, but on the other hand the business with software from the data cloud has lower margins than the classic business of licensing. The worst medium-term outlook shocked investors on Monday.

The cloud business is becoming increasingly important to SAP, CEO Christian Klein pictured.  But it has lower margins than the classic licensing business.

The cloud business is becoming increasingly important to SAP, CEO Christian Klein pictured. But it has lower margins than the classic licensing business.

Ralph Orlowski / Reuters

For years, SAP was by far the most valuable German company. Even the crown crisis could hardly harm the enterprise software provider for accounting, auditing, sales, purchasing, and more. The share price quickly recovered from the collapse linked to the pandemic in March and in early September, SAP shares even hit a record high of around 144 euros. But on Monday, the glory of the bag was over. After a profit warning released on Sunday and a revised mid-term outlook, stocks plunged 22% to around € 97. This was the deepest price drop in over 20 years.

Sharp drop in the margin

As board spokesman Christian Klein had only slightly revised the forecast for 2020 regarding key data such as sales and operating profit, it quickly became clear that the lowering of the mid-term forecast had shocked investors accustomed to success. According to SAP, many customers are at a tipping point due to the Corona crisis. For many companies, the move to the cloud, combined with a realignment of the business, has become essential. What sounds harmless means for SAP a negative effect on operating margin of a whopping 4-5 percentage points in 2023. This was a disastrous announcement from an investor’s point of view. It didn’t help that SAP wanted to massively increase cloud revenues over the next few years.

The short-term outlook for 2020 negatively affects the fact that the recovery in demand in recent weeks following the renewed restrictions on public life in some countries has been more contained than management anticipated. In the third quarter, sales fell by 4%, but this was mainly due to currency effects. The euro, stronger against the dollar, put SAP in difficulty, which is strongly represented in the US. Adjusted to these effects, revenues remained stable. The cloud business even grew 11%, but has lower margins than the company’s classic licensing business. SAP is the world market leader in enterprise application software for enterprises, but the cloud services business is becoming increasingly important. The group has over 400,000 customers in approximately 190 countries.

Entry opportunities for courageous investors

For the next few years, management expects only moderate sales growth and stagnant or even slightly lower operating income. Accelerated sales growth and a double-digit increase in operating profit can only be predicted from the relatively distant year 2023. Due to this shift in perspective, many financial analysts have lowered their thumbs and significantly lowered their targets. of price. However, some credit to the company that growth prospects are still intact and stick to price targets around € 140.

For brave investors, the massive stock crash could be an opportunity to buy back the company’s stock in order to speculate on a quick rebound. At least for resilient investors, the risk-return ratio looks attractive after the sharp drop in prices. And there is also some consolation for SAP, the group is still the most valuable company in the German stock index, ahead of Linde, Siemens and Volkswagen.

You can contact the corporate editor Michael Rasch Twitter, LinkedIn and Xing as well as NZZ Frankfurt on Facebook.

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