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The German software giant
lost nearly a quarter of its market valuation on Monday after the company issued a sobering update to its financial forecast for the rest of the year, along with weaker-than-expected third-quarter results.
The slide was weighing on shares of hardware and software companies with substantial exposure to enterprise information-technology spending.
While there has been much discussion about how the Covid-19 pandemic is driving an acceleration in “digital transformation,” the global economic downturn triggered by the outbreak has also spurred many affected companies to slow or reduce spending plans in response. In short, while the pandemic has helped a few well-placed tech companies—including
Zoom Video Communications
(DOCU)—it has been a drag on others, particularly those with significant exposure to retailing, airlines, cruise lines and other industries hit hard by the pandemic.
SAP reduced its overall revenue outlook for the current year—it now sees a range of €27.2 billion to €27.8 billion ($32.1 billion to $32.8), down from a previous range of €27.8 billion to €28.5 billion—and specifically trimmed expectations for its cloud-software business. It now sees full-year cloud revenue of €8 billion to €8.2 billion, down from a previous range of €8.3 billion to €8.7 billion. Obviously rattled by the situation, SAP also vowed to accelerate its own shift to cloud-based software.
What makes this situation especially worrying is that SAP is basically saying its business has been affected by the long-feared second wave of the pandemic, which has become a growing issue in Europe, in particular.
“While SAP continues to see robust interest in its solutions to drive digital transformation as customers look to emerge from the crisis with more resilience and agility, lockdowns have been recently re-introduced in some regions and demand recovery has been more muted than expected,” the company said. “Further and for the same reasons, SAP no longer anticipates a meaningful recovery in SAP Concur business travel-related revenues for the remainder of the year 2020.”
And the company said it expects muted revenue growth and flat to slightly lower operating profit over the next two years, with acceleration starting in 2023.
Citi analyst Walter Pritchard says investors are likely to see the SAP warning as a negative for any software company with exposure to large deals where sales cycles could be similarly disrupted, including
(NOW) and others. He also says the company’s decision to accelerate its transformation to the cloud could add to concerns about other legacy companies going through similar transitions, including
SAP was down 24% Monday afternoon, as the
Dow Jones Industrial Average
fell 2.5%. Most enterprise software and hardware stocks were also lower, though not as drastically as SAP. Oracle,
Enterprise (HPE), HP Inc. (HPQ),
(IBM), Service Now, Workday and VMware were all down between 3% and 6%.
Write to Eric J. Savitz at [email protected]