German business software giant SAP reported quarterly results this morning that fell short of what analysts had expected, but co-CEO Bill McDermott blamed the miss on currency effects and insisted that the company’s relatively young cloud applications business is growing profitably.
SAP reported revenue of 3.7 billion euros (about $5.1 billion), which was short of the expected 3.8 billion euros. Operating profit was 919 million euros, well short of the 975 million that was expected. SAP’s shares fell by more than two percent.
The main problem came from currency fluctuations. With the euro gaining strength against international currencies including the U.S. dollar, companies like SAP take a hit when they get paid in those other currencies and then convert them to euros. In the last six months, the euro has gained more than two percent against the dollar and about six percent against the Japanese yen.
It’s not going to change anytime soon. The company said it expects the currency headwinds to weigh on its operating profit for the full year by about five percent.
It was the second quarter in a row in which SAP has come in short of analysts’ expectations.
That’s not to say there wasn’t good news. Revenue from cloud services grew 38 percent on a constant currency basis to 221 million euros, amounting to about six percent of sales. But it’s a long way off from SAP’s longer-term goal of hitting two billion euros in cloud revenue by the end of 2015. That has tended to fuel expectations that SAP will make another big cloud acquisition soon. SAP’s cloud unit experienced a big management shake-up in January.
SAP competes with Oracle, Salesforce.com, Workday and Netsuite in several portions of the market for big business software applications. SAP has been aggressive in the cloud business in recent years, spending nearly $8 billion on cloud software companies. In 2011, it spent $3.4 billion on SuccessFactors, a cloud-based maker of human resources software for companies, and in 2012 it paid $4.3 billion for Ariba, a cloud-based supplier of business data.
Still, it’s facing the basic dilemma that cloud services eat into its existing business. The main portion of SAP’s revenue comes from its traditional software business. That portion of the business, software and services, grew nine percent to three billion euros. Sales of new software licenses, which are considered a key indicator of future revenue, fell by five percent.
McDermott was on CNBC this morning and talked about both the currency effects and SAP’s ability to hang on to its current customers.