SAP, Europe’s largest software company, has cut its revenue and profit forecasts for this year as a resurgence of coronavirus cases depressed business spending, sending the group’s shares down as much as 20 per cent on Monday.
The German company, which is in the midst of transforming into a cloud-based business, warned that its customers, which include many of the world’s largest corporations, were spending less as rising Covid-19 cases hit business confidence.
“Lockdowns have been reintroduced in some regions, recovery is uneven and companies are facing more business uncertainty,” SAP said, adding that it expected this to continue through at least the first half of next year.
As a result, SAP cut its revenue and operating profit forecasts for 2020. It also scrapped targets for 2023 announced last year, due to negative currency effects, the impact of Covid-19 and a surge in demand for its cloud-based products.
While licenses for on-premise software suites bring revenues into the business upfront, customers pay very little upfront for cloud subscriptions, with the bulk of the payments coming through three or four years later, the company said.
Having dropped as much as 20 per cent, the shares were down 17 per cent in mid-morning trading on Monday in Frankfurt, giving the company a market capitalisation of €120bn.
SAP said the pandemic had accelerated demand for cloud-based suites, and that it now expected to book cloud revenues of €22bn a year by 2025.
However, it added that this shift would bring its 2023 operating margin down by approximately 4 to 5 percentage points, as it poured money into improving a cloud-based offering that competes with the likes of Salesforce and Oracle.
“We will speed up the modernisation of our cloud delivery infrastructure,” Christian Klein, chief executive, told reporters on Monday. “This will require additional investments in 2021 and 2022, but it sets us up for cloud cost margin of approximately 80 per cent by 2025.”
Last year, SAP said it intended to triple its annual cloud revenues, which were roughly €5bn in 2018, by 2023, and bring in €35bn overall.
However, the Walldorf-based group said this ambition had been marred by negative currency effects, which have brought down revenues and profits by about 4 per cent, as well as the effects of the pandemic.
SAP also announced that revenues in the third quarter had dropped 4 per cent, to €6.5bn, while operating profit fell 12 per cent to €1.5bn.
SAP Concur, which helps companies manage travel expenses, had “yet to see a meaningful recovery”, the software group said, as it lowered the range of its expected annual profits in 2020 by €200m.