Skip to main content

SAP reports its Q2 2022 - A snap Analysis

 

The News

On July 21, 2022, SAP reported its numbers for the second quarter 2022 and the first half of the business year 2022. In contrast to the last times, I’d like to cover this in written form, as this one is quite interesting and probably takes a bit longer than 5 to 10 minutes.

SAP Q2 2022 numbers; source SAP

SAP changed the report structure to reflect the common cloud service terminology. It is reporting IaaS, PaaS and SaaS now.

The overall cloud revenues increased by 34 percent, with some tailwind by the current weakness of the Euro. The cloud backlog surpassed € 10 bn for the first time, growing at the same pace. S/4HANA Cloud revenue is up by 84 percent, with the backlog even growing at 100 percent.

This revenue growth is consistent across the reporting regions.

For the first time, SAP broke out PaaS revenues, which came in at € 389 million, up 49 percent yea over year. 

Not surprisingly, the profitability went down, which is attributable to loss of business due to the war in Ukraine and unfavorable conditions for SAP Ventures.

The bigger Picture

The enterprise cloud market is extremely contested. It is a saturated market that is dominated by few vendors that are able to support important parts of or even the complete business value chain. The challenge facing all these vendors is the necessity to scale down into the mid and lower mid-market. This, however, is a region that is covered by smaller vendors with similar aspirations, e.g., Creatio, Freshworks, Hubspot, Odoo, Pega, ServiceNow, SugarCRM, Zendesk or Zoho, to name but a few. 

The big vendors in this Clash of Titans follow different strategies and have different strengths. Oracle, SAP, and within limits Microsoft are full suite vendors, while Salesforce focuses on customer facing processes. Microsoft and Oracle have a considerable infrastructure business, something that Salesforce does not have and SAP to a limited extent (€ 257 million in Q2 2022). Oracle’s core domain is its database business, while SAP is strong in the ERP and supply chain areas. Microsoft has best access to consumers and data, thanks to LinkedIn and Bing. 

All of them have strong ecosystems, with Microsoft and Salesforce likely having the leading ones. Having said that, all ecosystems leave room for improvement in a sense that they are geared towards value generation at the hub.

My Analysis and Point of View

Decisive in this game will be the ability to offer strong, well-integrated solutions that offer easy adaptability and extensibility with a fast time to value for the customers.

The first reaction to the numbers reported by SAP should be that congratulations are in order although the falling Euro certainly helped. Still, the overall growth rate in all likelihood surpassed the growth rate of the main competitors. Their numbers will be interesting to see. The accelerating traction of S/4HANA Cloud shows that SAP certainly hit a nerve here, supported by the implementation program RISE, which, interestingly enough, seems not yet have to be copied by any competitor. I will not discuss the strengths and weaknesses of RISE here. This has been done by other analysts; I recommend reading Josh Greenbaum’s recent assessment.

It is also amazing to see, how a huge vendor like SAP can achieve a triple: A complete transition of its portfolio from on premise to the cloud, maintaining growth while staying highly profitable. This achievement is largely undervalued by the (finance) analyst community. There are other vendors that buy growth on cost of profitability. But then, I am an industry analyst and not a finance analyst and look a bit more geeky at things.

What makes the SAP numbers interesting, is that the usual vendor obfuscation changed somewhat. Cloud revenue is now split into the industry standards IaaS, PaaS and SaaS, which is laudable. This makes it also more obvious that SAP wants to be seen more as the platform vendor that the company is – and has been for quite some time. What it also enables, is a better guesstimate at SAP’s CX numbers, considering that the main revenue drivers of the SaaS portfolio are S/4HANA Cloud, Business Network, HCM, the industry clouds and the CX portfolio. Given this portfolio and the fact that its size – minus S/4HANA Cloud is at around € 1.9 billion, it is reasonable to assume that SAP’s CX business size is well below € 1 billion, probably at around € 600 – 800 million (per quarter). This would still not be a number to sneeze at, but clearly shows that there is some potential, also given the number of net new names in the S/4HANA business.

What is obvious by the lack of mention is that the CX portfolio is not one of the revenue drivers – means that its growth rate is below the 35 percent growth of the SaaS business, nor does it seem to be at the core of SAP’s strategy, which is unfortunate, as SAP is certainly competitive in the league for the tier one vendors.

Still, what needs to be said, is that its growth rate seems to be at least comparable to the numbers that were reported by Salesforce and Oracle for their last quarters (or Zendesk or Freshworks, for that matter). Again, the upcoming numbers of especially Salesforce and Microsoft will be worthwhile a deeper look. 

SAP certainly tells a strong story along not only corporate, but also whole industry value chains and underpins it with its Business Network and initiatives like Catena-X. Industry cloud narratives gain traction as well, albeit as a company that does industry processes for several decades now, this narrative came interestingly late.

The CX organization within SAP tells a good story as well. Refer to Jon Reed’s recent interview with SAP CX Chief Revenue Officer Jen Bailin for more details. Still, being a CRM/CX guy, I wished that this story would be told more prominently on the board level, i.e., outside the CX organization. That way, SAP would become far more visible in the CX market and could strengthen its position. It certainly has what it takes on the product side, especially considering the Commerce Cloud, Emarsys, and the Customer Data Cloud Solutions portfolio.

The future can be very bright for SAP. 

And the company is in a position that enables it to shape its own fate.

Comments

Last Year's Top 5 Popular Posts

SAP CRM and SAP Jam - News from CRM evolution

During CRM Evolution 2017 I had the chance of talking with Volker Hildebrand and Anthony Leaper from SAP. Volker is SAP’s Global Vice President SAP Hybris and Anthony is Senior Vice President and Sales GM - Enterprise Social Software at SAP. Topics that we covered were things CRM and collaboration, how and where SAP’s solutions are moving and, of course, the impact that the recent reshuffling in the executive board has. Starting with the latter, there is common agreement, that if at all it is positive as likely to streamline reporting lines and hence decision processes. First things first – after all I am a CRM guy. Having the distinct impression that the SAP Hybris set of solutions is going a good way I was most interested in learning from Volker about how there is going to be a CRM for S4/HANA. SAP’s new generation ERP system is growing at a good clip, and according to the Q1/2017 earnings call, now has 5,800 customers with 400 new customers in the last quarter alone. Many

How to play the long game Zoho style

The news On February 7 and 8 2024, Zoho held its annual ZohoDay conference, along with a pre-conference get together and an optional visit to SpacX’s not-too-far-away Starbase. Our guide, who went by Chief, and is probably best described as a SpaceX-paparazzi was full of facts and anecdotes, which made the visit very interesting although we couldn’t enter Starbase itself. The event was jam-packed with 125 analysts, 17 customer speakers, and of course Zoho staff for us analysts to talk to. This was a chance we took up eagerly. This time, the event took place in MacAllen, TX, instead of Austin, TX. The reason behind this is once more Zoho’s ruralization strategy, transnational localism.  Which gives also one of the main themes of the event. It was more about understanding Zoho than about individual products, although Zoho disclosed some roadmaps. More about understanding Zoho in a second.  The second main theme was customer success and testimonials. Instead of bombarding us with presenta

Reflecting on 2023 with gratitude - What caught your interest

A very happy, healthy and prosperous new year to all of you. This is also the time to review my blog and to have a look what your favourite posts of 2023 have been. With 23 posts, I admittedly have been somewhat lazy in 2023. Looking at the top ten read posts in 2023, there is a clear clustering about a few topics, none of them really surprising. There is a genuine interest in CX, ChatGPT, and vendors.  Again, this is not a surprise.  Still, there are a few surprises in the list! So, without further adoo, let’s hear the drumroll for your top five favourite posts on my blog – in ascending order. After all, some suspense cannot harm. The fifth place gets claimed by my review of ZohoDay 2022 – “ Don’t mess with Zoho – A Zohoday 2022 recap ”. Yes, you read that right. This is a 2022 post. The fourth place got claimed by another article on Zoho, almost one year younger: Zoho, how a technology company reimagines business software . It is a reflection on the Zoholics 2023 conference in Austin

The Generative AI Game of Thrones - Is OpenAI toast?

The News This has been an exciting weekend for the generative AI industry. On Friday November 17, OpenAI announced that the company fired its figurehead CEO Sam Altmann and appointed Chief Technology Officer Mira Murati as interims CEO in a surprise move. The press release states that Altmann “ was not consistently candid in his communications with the board .” Surprised was apparently not only Sam Altmann, but also the till then chairman of the board Greg Brockman who first stepped down from this position and subsequently quit OpenAI. Investors, notably Microsoft, found themselves blindsided, too – or flat footed depending on the individual point of view. Satya Nadella was compelled to state that Microsoft stays committed to the partnership with OpenAI in a blog post that got updated on November 19, 11:55 pm. All hell broke loose. Microsoft shares took a significant hit. A number of additional senior OpenAI personnel quit. Both, Altman and Brockman, voiced the idea of founding anoth

Salesforce stock tanks after earnings report - a snap analysis

The news On May 29, 2024, Salesforce reported its results for the first quarter of the fiscal year 2025. Highlights are a total quarterly revenue of $9.133bn US, resembling a year-over-year growth of 11 percent a current remaining performance obligation of $26.4bn US a remaining performance obligation of $53.9B US an operating margin of 18.7 percent. diluted earnings per share of $1.56 The company reported a revenue guidance of $9.2bn - $9.25bn US for the next quarter and a full year guidance of $37.7bn - $38.0bn US, resembling growth rates of 7 – 8 percent and 8 – 9 percent, respectively. With these numbers, Salesforce ended up at the lower end of last quarter’s guidance on the revenue growth side while exceeding the earnings per share projection and slightly lowered the guidance for the fiscal year 2025. The result: The company’s share price dropped from $272 to bottom out at $212. The bigger picture Salesforce is the big gorilla in the CRM and CX industry. The company has surpassed