SAP SE (SAP) To Report Q1 Earnings: What's In The Cards?
Zacks Investment Research | Apr 19, 2017 09:30PM ET
SAP SE (DE:SAPG) (NYSE:SAP) is slated to report first-quarter 2017 results on Apr 25.
After two back-to-back earnings misses, the company posted a positive earnings surprise of 23.6% in the last reported quarter. Overall, SAP has a choppy earnings surprise history, beating estimates twice for as many misses in the trailing four quarters. It has an average positive surprise of 5.4% for the observed period.
Let’s see how things are shaping up for this announcement.
Factors to Consider
In the past few quarters, SAP’s top-line growth was largely driven by the solid growth of its cloud subscriptions and support business. We believe that solid performance of both traditional and cloud business will continue to drive sales growth for the soon-to-be-reported quarter. The company expects cloud subscriptions and support revenues to surpass software license revenues in the near future.
As a matter of fact, SAP HANA (High-Performance Analytic Appliance), a class of business applications, has enjoyed momentous traction since its launch and is likely to continue driving first quarter financials. During fourth-quarter 2016, the company gained 1300 customers, of which 30% are entirely new. In the past one year, S/4HANA adoption doubled to more than 5,400 customers.
Other potential profit churners include SAP’s Customer Engagement and Commerce solutions, and human capital management applications. SuccessFactors Employee Central, which forms the backbone of the company’s Human Capital Management offerings, surpassed the 1,580-customer mark in fourth-quarter 2016. In addition, SAP’s wide business network, managed through three players—Ariba, Fieldglass and Concur, is expected to supplement first-quarter top-line performance.
Despite these positives, economic slowdown in most of the company’s end markets is likely to hurt first-quarter financials. For quite some time now, weak sales in Latin American countries and China have restricted top-line growth. Unfortunately, this trend is likely to continue for the soon-to-be-reported quarter as well. In addition, a weaker global client spending in the technology sector is expected to weigh down on the company’s profitability.
Moreover, the cloud domain is characterized by sturdy competition from technology biggies like Microsoft (NASDAQ:MSFT), IBM (NYSE:IBM) and Amazon (NASDAQ:AMZN). Stiff competition in the IT industry may also dampen the first-quarter financials. Furthermore, currency fluctuations, heightened by the Brexit referendum, are likely to play spoilsport for the upcoming results.
Earnings Whispers
Our proven model does not conclusively show that SAP will beat earnings estimates in this quarter. This is because a stock needs to have both a positive Earnings ESP Filter .
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