Whatās Going On Here?SAP released an overwhelmingly adequate fourth-quarter update on Friday, and the cloud providerās throngs of relatively satisfied investors went mild. What Does This Mean?SAPās last earnings announcement went horribly ā so horribly, in fact, that its share price plummeted and lost the software giant its title as Europeās most valuable tech company. To calm investorsā nerves this time around, then, the software giant opted to deliver last quarterās more reassuring news ā that its profit had beaten analystsā estimates ā earlier than itād originally promised. And it seemed to work: SAPās share price barely moved on Friday ā a big step up from the 23% drop investors saw last time around. Why Should I Care?For markets: Ready, willing, and stable.
Even SAPās acknowledgement that 2021ās profits might be 6% lower than last yearās didnāt seem to do too much damage to its share price. That might be thanks to some smart preemptive expectation-setting: the company had previously announced that its shift towards cloud computing ā which doesnāt benefit from up-front fees like its legacy software does ā would negatively impact profitability in the short term. And in any case, SAP was able to point to a 13% growth in its cloud segmentās revenue compared to the same time in 2019. Thatās in line with the previous quarter, sure, but it came as welcome news after a few pretty volatile ones.
The bigger picture: Unhealthy competition.
The cloud industry proved it could hold its own during the pandemic, which might be why itās expected to grow three times as quickly this year as it did last (tweet this). So itās no wonder SAP has big competition in the segment, with Microsoft, Amazon, and Google all getting involved. That means the pressure will be on SAP all over again when those firms announce their own results, and its investors have a better insight into whether it can keep up with the industryās heavy-hitters. | 