SAP's second quarter earnings were strong, but the biggest headlines from the results revolve around what the company didn't do. In short, SAP didn't cut its 2012 outlook and remains upbeat on its mobile, cloud and analytics product cycle.
This tech earnings season there's a common formula. Enterprise technology companies are reporting solid results and tweaking their outlooks a bit to account for a shaky economy. SAP, which happens to dominate in economically challenged Europe, is maintaining a strong outlook.
The real stunner here is that the bulk of SAP's revenue comes from Europe, Middle East and Africa. Those last two regions could see boom cycles as emerging markets, but Europe is struggling economically amid government debt worries, austerity measures and anemic gross domestic product reports.
Most analysts are taking SAP's results in stride as evidence that the company can deliver in any economic condition. Cowen & Co. analyst Peter Cohen said he was perplexed by SAP's quarter and outlook. He said in a research note:
We are flummoxed by SAP's results; it's hard for us to imagine how a legacy on premise software vendor that generates 45 percent of revenues from Europe is printing such strong numbers when virtually every other legacy enterprise software vendor is struggling. We are even more perplexed by 60% reported growth in ASE, Sybase's $800 million legacy database business with single digit market share and an historical mid single digit growth rate. Are we seeing a resurgence in legacy tech or is SAP heading down a dangerous path of heavy discounts on large deals and creative product revenue allocation? We are inclined to believe its the latter.
Now SAP has every reason to be confident. The company delivered a strong first half, saw second quarter revenue top €1 billion and has retooled for cloud computing via the acquisitions of SuccessFactors and Ariba.
But a lot has happened across the global economy since SAP gave its initial outlook for 2012. Can SAP really deliver? For now, SAP is touting the following:
The company reported a net profit of €661 million on revenue of €3.9 billion in the second quarter. Profits were up 12 percent and revenue surged 18 percent from a year ago.
Software revenue was €1.06 billion, up 26 percent from a year ago.
Support revenue in the second quarter was €2.01 billion, up 16 percent from a year ago.
SAP ended the second quarter with 60,972 employees, up 13 percent from a year ago. SAP is also adding sales staff to juice revenue growth.
The company acknowledged a currency boost as the Euro has weakened, but even at constant currency SAP's second quarter sales growth was 12 percent.
SAP co-CEOs Bill McDermott and Jim Hagemann Snabe touted cloud, mobile and in-memory products as key fuel for hitting 2015 targets.
It's hard to argue with SAP's first half. If SAP can run through the second half courtesy of its cloud, mobile and analytics efforts like HANA it will have weathered quite the economic storm on its home turf.