SAP Sees S/4HANA Cloud, ‘Rise With SAP’ Momentum In Q2 Results

CEO Klein says SAP is gaining market share in cloud software – an apparent rebuttal to Oracle CTO Larry Ellison’s own claims of competitive victories.

SAP is seeing strong demand from both new and existing customers for its Rise with SAP digital transformation offerings, which in turn are fueling sale growth of the company’s S/4HANA Cloud software, Business Technology Platform and line-of-business applications.

CEO Christian Klein, during an earnings call Wednesday for SAP’s 2021 second quarter financial results, said the growing demand for SAP’s cloud offerings has increased the company’s cloud application market share over rivals.

“Strong ‘Rise’ momentum leads first to strong adoption of S/4HANA Cloud and our Business Technology Platform,” Klein said. “And secondly, through our business technology platform, customers then adopt our integrated line-of-business applications. That‘s exactly the dynamic we saw play out this quarter.”

[Related: SAP Looks To Deepen Partner-Customer Engagements With New Go-To-Market Plan]

SAP has put greater emphasis on its cloud sales in the last year over traditional software license sales, although the latter remains a big part of the Waldorf, Germany-based company’s revenue stream.

In January SAP launched Rise with SAP, a package of software and services offered at a single subscription price designed to help customers accelerate their digital transformation initiatives. At the core of Rise with SAP is the company’s flagship S/4HANA suite of ERP applications and the Business Technology Platform, which includes database management and analytics, application integration and extension, and other capabilities.

Revenue from cloud sales increased 11 percent during the second quarter (ended June 30) to 2.28 billion euro (U.S. $2.69 billion) compared to 2.04 billion euro (U.S. $2.41 billion) in the same quarter one year earlier. Software licenses and support revenue declined 5 percent in the quarter to 3.47 billion euro (U.S. $4.10 billion) from 3.67 billion euro (U.S. $4.32 billion) one year before.

S/4HANA Cloud revenue was up 39 percent in the second quarter, year over year, and Klein said the growing order backlog for S/4HANA Cloud “sets us up for significant acceleration of S/4HANA Cloud revenue growth” in the second half of 2021.

The CEO added that there are now more than 17,000 S/4HANA customers and sales of the application suite had reached an annual run rate of more than 1 billion euro (U.S. $1.18 billion).

Klein said SAP saw “strong demand” for Rise with SAP from both the company’s existing customers and new customers, “from companies of all sizes, across industries and geographies, and especially from our larger customers.” He did not provide specific sales statistics, although he named chip maker AMD as one Rise with SAP customer.

“Our results demonstrate that our strategy is not just working but creating distinct momentum in the market,” the CEO said.

For the second quarter SAP reported total revenue of 6.67 billion euro (U.S. $7.86 billion), down 1 percent from 6.74 billion euro (U.S. $7.95 billion in the second quarter of 2020.

After-tax profit for the quarter was 1.45 billion euro (U.S. $1.71 billion), up 64 percent from 885 million euro (U.S. $1.04 billion) the same quarter one year earlier.

Klein, referencing “the latest analyst research” on the call, also said SAP has “increased its market share in the cloud over our competition.” He said that in the second quarter SAP beat out rivals – without specifying which competitors – in more than 350 competitive deals.

Larry Ellison, Oracle chairman and chief technology officer, has recently stepped up his competitive rhetoric against rivals, saying Oracle is gaining market share against SAP in cloud ERP and AWS in cloud databases.

SAP shares closed Wednesday at $138.86, down $5.24 a share or 3.64 percent. Seeking Alpha attributed the stock price slip to what it described as SAP’s “modest full-year guidance boost.”

SAP slightly raised its cloud revenue forecast for the year from earlier guidance of between 9.2 billion and 9.5 billion euros to between 9.3 billion and 9.5 billion euros, which would represent a 15 to 18 percent gain over 2020.