SAP: Profit? Pfft. We're all about the cloud business growth

SAP: Profit? Pfft. We're all about the cloud business growth

Summary: The German software maker is pushing back its operating margin goal by two years in efforts to gather pace behind its cloud business.

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(Image: SAP)

It's all about the cloud. And now German business software making powerhouse SAP is gearing up to take clear advantage of the datacenter-based platform.

So much so that the Walldorf-based company is pushing back its operating margin goal of 35 percent to 2017 instead of 2015 in order to focus its efforts on the cloud platform. Last year, SAP's margin stood at about 32 percent.

First reported by Reuters, SAP wants to cloudify its products and services further and invest in the platform. But, the company declined to give details or say how much it has spent on the move so far.

In doing so, its customers — including Vodafone and Coca-Cola, among dozens of other major firms — will pay smaller license fees for the cloud service rather than hefty up-front costs. That makes it easier for SAP to predict how much revenue it will generate over a set period of time.

Earlier in the day, co-chief executive Bill McDermott said by 2017 the company hopes to have more than 65 percent, up by 15 percentage points, of recurring revenue.

According to Cowen analyst Peter Goldmacher, who rates SAP as an "underperform," SAP's cloud business is about 5 percent of its overall sales, which is expected to grow to 15 percent by 2017.

"The relatively small contribution of this business leads us to believe that management's emphasis on this segment is meant to distract investors from weakness in SAP's traditional Applications businesses," he said in a research note.

He added: "We believe SAP could choose to increase reported Cloud revenues by creatively allocating sales to the segment, like it did with HANA, particularly given that "Cloud" is a subjective term."

SAP entered the cloud business two years ago after spending $3.4 billion on SuccessFactors and $4. 3 billion on Ariba.

McDermott said later, according to the wire agency, that SAP would not rule out further acquisitions if they proved necessary or "make sense."

The cloud services market grew by close to 20 percent last year, and worth an estimated total of $131 billion by 2017, according to Gartner figures published last year.

Topics: Enterprise Software, SAP

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