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SAP raises 2018 outlook as cloud sales growth outpaces bookings

(Bloomberg) -- SAP SE is betting big on its cloud business for future sales growth, raising its outlook even as concerns remain about whether new bookings can keep pace.

The German software giant on Thursday raised its guidance both for this year and for 2020, citing accelerating cloud sales. New cloud bookings, a keenly watched metric because it indicates future revenue growth, increased 29 percent -- slower than 40 percent sales growth in the segment.

“While the overall headlines are positive, we suspect the debate today will be on cloud bookings,” Credit Suisse analysts led by Charles Brennan said Thursday in an emailed note. “Management has been flagging a growing disconnect between bookings and revenue as the company pushes more flexible pricing models like pay-as-you-go.”

SAP’s shares fell as much as 3.7 percent and traded 0.86 percent lower at 103.78 euros as of 10:23 a.m. in Frankfurt. The stock is up more than 11 percent this year, valuing the company at 127.6 billion euros.

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The SAP SE logo sits on a 60 meter tall Ferris wheel during the CeBIT 2018 tech fair in Hanover, Germany, on Monday, June 11, 2018. CeBIT, Europe's business festival for innovation and digitization, runs June 11 – 15. Photographer: Krisztian Bocsi/Bloomberg

Chief Executive Officer Bill McDermott is looking to expand SAP’s cloud-based services to challenge rivals such as Salesforce.com Inc. and Oracle Corp. SAP this year made its biggest acquisition in more than three years when it bought Callidus Software Inc. for about $2.4 billion, gaining access to new sales analytics and customer engagement tools. Europe’s biggest technology company expects cloud subscriptions to account for about 29 percent of total revenue by 2020, up from around 16 percent in 2017.

Strong Momentum

The company now expects non-IFRS cloud subscriptions and support revenue of as much as 5.2 billion euros ($6.05 billion) this year, up from a previous maximum expectation of 5.15 billion euros.

It also increased its 2020 ambition for cloud subscriptions and support revenue by 200 million euros to as much as 8.7 billion euros.

“This update reflects the strong momentum in SAP’s cloud business, the acquisition of Callidus Software as well as a more challenging currency environment compared to 2017,” the company said in a statement.

SAP’s flagship S/4 Hana software added about 600 customers in the April-June period to reach more than 8,900 users, a bigger intake than in the previous quarter. The software allows businesses to run tasks on their own machines or in a cloud-computing arrangement hosted by SAP or one of its partners.