Whatâs Going On Here?SAP released an overwhelmingly adequate fourth-quarter update on Friday, and the cloud providerâs throngs of relatively satisfied investors went mild. What Does This Mean?SAPâs last earnings announcement went horribly â so horribly, in fact, that its share price plummeted and lost the software giant its title as Europeâs most valuable tech company. To calm investorsâ nerves this time around, then, the software giant opted to deliver last quarterâs more reassuring news â that its profit had beaten analystsâ estimates â earlier than itâd originally promised. And it seemed to work: SAPâs share price barely moved on Friday â a big step up from the 23% drop investors saw last time around. Why Should I Care?For markets: Ready, willing, and stable.
Even SAPâs acknowledgement that 2021âs profits might be 6% lower than last yearâs didnât seem to do too much damage to its share price. That might be thanks to some smart preemptive expectation-setting: the company had previously announced that its shift towards cloud computing â which doesnât benefit from up-front fees like its legacy software does â would negatively impact profitability in the short term. And in any case, SAP was able to point to a 13% growth in its cloud segmentâs revenue compared to the same time in 2019. Thatâs in line with the previous quarter, sure, but it came as welcome news after a few pretty volatile ones.
The bigger picture: Unhealthy competition.
The cloud industry proved it could hold its own during the pandemic, which might be why itâs expected to grow three times as quickly this year as it did last (tweet this). So itâs no wonder SAP has big competition in the segment, with Microsoft, Amazon, and Google all getting involved. That means the pressure will be on SAP all over again when those firms announce their own results, and its investors have a better insight into whether it can keep up with the industryâs heavy-hitters. | 