SAP's software licensing took Q1 hit due to COVID-19 pandemic

"Business activity in the first two months of the quarter was healthy. As the impact of the COVID-19 crisis rapidly intensified towards the end of the quarter, a significant amount of new business was postponed," said SAP.

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SAP said its software licensing revenue fell 31% in the first quarter amid the COVID-19 pandemic, but its cloud revenue held up well. SAP added that it is stepping up its remote sales and implementation efforts.

The enterprise software giant, which reports its full earnings April 21, said that its cloud revenue for the quarter will be up 29% and total sales up 7%.

SAP said the following:

Business activity in the first two months of the quarter was healthy. As the impact of the COVID-19 crisis rapidly intensified towards the end of the quarter, a significant amount of new business was postponed. This is reflected, in particular, in the significant year over year decrease in software licenses revenue.

SAP has quickly responded to the new environment by adopting a virtual sales and remote implementation strategy. To protect profitability SAP is slowing hiring and reducing discretionary spend in addition to natural savings e.g. from lower travel and virtualized events.

The drop in traditional software licensing isn't too surprising. With enterprises going remote and shutting down businesses, there aren't enough employees to close deals and then implement the software. In addition, SAP's customers are cutting spending too. 

SAP said total sales will be €6.52 billion (IFRS), up 7%, in the first quarter with cloud revenue at €2.01 billion (IFRS). Software license revenue was €0.45 billion. Analysts were modeling SAP first quarter sales of €6.53 billion following the company's fourth quarter report.

CFO Luka Mucic said in a statement that SAP can emerge from the COVID-19 uncertainty in a stronger position. SAP provides business networks and technologies to manage the supply chain and financials. These technologies are critical to enterprises.

SAP's operating profit in the first quarter checked in at €1.12 billion. SAP took a hit of €36 million due to cancelling its annual Sapphire Now event.

As for the 2020 outlook, SAP is projecting its non-IFRS cloud revenue to be between €8.3 billion and €8.7 billion, up 18% to 24% at constant currency. SAP had projected a range of €8.7 billion to €9 billion for cloud revenue. Total revenue will be between €27.8 billion to €28.5 billion for 2020, down from SAP's previous guidance of €29.2 billion to €29.7 billion.

SAP's operating profit on a non-IFRS basis will be between €8.1 to €8.7 billion at constant currencies for the first quarter, down from the previous range of €8.9 billion to €9.3 billion. SAP said its long-term 2023 outlook is intact.