The Six Five team discusses SAP and their big cloud gains.
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Transcript:
Daniel Newman: But SAP, they’ve been really focused. They haven’t actually come out with earnings yet, but since we’re going to have so many earnings, the Germans love a good pre earnings and some companies do that. They come out early. They get their stuff organized.
Of course, when you run a massive ERP system, a little bit like Oracle, they can get their earnings, I think, it’s like 12 days, 10 days, where most companies take at least 30. SAP gets theirs out early too. So Pat…
Patrick Moorhead: Yeah. Let’s dive into that. There are a few countries that require interim reports. Korea and Taiwan are two countries. EU and Germany, they don’t require interim reports, but they’re a little bit more open and they’re regulated to where if they’ve had a really good quarter, they want you to come out and say it. Very infrequently in the US do I see any more, aside from a warning, very rarely do we see an upside. But we did here.
In fact, I think the most exciting part of it was cloud. Cloud revenue up 28%. Obviously, SAP doesn’t necessarily stand up the biggest public cloud. In fact, it’s mostly hybrid cloud with the exception of some enterprise SaaS apps that they have, but up 28%. I mean, for a company that got zero and continues to get very little respect in the cloud, that is a big deal. SAP S/4HANA, up 84%, which they’re giving credit for their rise with SAP, essentially an easier way for customers to move over from standard HANA to S/4HANA.
We’ll get more detail, I’m hopeful, in the earnings call. But yeah. A company I haven’t given a whole lot of respect to driving increased cloud numbers.
Daniel Newman: Yeah. Well, I mean, I think maybe I can take this, just briefly touch on SAP, and then maybe close up here. Just talking about what to expect in the week ahead as earnings start to fall. But you saw a company grow about 6%, okay, year on, year overall. Total revenue, close to $8 billion. You’re seeing significant growth in cloud. This has been a target area for the company. And cloud is still a little bit nascent as to exactly what is cloud, but that’s actually becoming more the normal than… So you’d say more the rule than the exception.
The market wants to see SAP’s cloud business grow. Being a legacy license-based software provider and ERP is a critical thing that runs hundreds of thousands of company, but it’s not necessarily considered sexy, cool, or fast paced for growth. So people want to say, “Where’s the growth going to come from?” Well, for SAP, the growth is going to come from the migration to cloud, and that’s encouraging to see that number continuing to go up.
It should also help, in time, push the company’s margins up. So it means not only more dollars, but more profit per dollar. And if there’s any leading indicator for that, look at some of the pivots from the likes of Microsoft and what they were able to do when they moved the vast majority of their licensing business to subscription and cloud business. It’s just better.
Most companies were willing to pay for it because they’re willing to sacrifice the short-term benefit, or the long… You could say it’s the short-term benefit of these monthly subscription payments, as opposed to these massive one time annual or multi-annual licensing fees.
With just a minute left, Pat, just ahead, we’re going to probably end up having a couple earnings paloozas over the next few weeks. Definitely next week, because we’re going to start to see the whole rundown, Microsoft, Apple, AMD, Google, Alphabet, and so many more are going to start their reporting cycles in the next week.
Here’s an interesting thing. The economy and the stock market definitely has a little bit of that feeling like it’s going to capitulate. Truth is, about 50% of the NASDAQ right now is down by 50% from their highs. So although the fact that the indices have only fallen about 12% right now, the overall, a lot of correction has been made for a lot of tech companies. Having said that, depending on the actions of the fed, inflation, interest rates, and now earnings, it’s going to be interesting to see if there’s going to be more value compression.
When I talk about this, what I basically want to say is this, Pat. I think tech is robust. This is not investment advice, we made that clear from the beginning, but I actually think the numbers from tech are going to be good. First of all, it’s because we’re only reporting in on that first part since the Omicron downfall. I don’t think the demand for cloud or semiconductors or PCs or software has gone down in any meaningful way.
I don’t think a small increase in interest rates is going to change that. I don’t think inflation is really impacting companies’ needs, which are the primary buyer. By the way, all the people staying at home are still subscribing to all their streaming services. They’re still playing games. They’re watching TVs. They’re playing on their mobile devices. I think tech is going to be more resilient. While everybody wants to pivot to value, I think we’re going to have good results.
But the thing to watch, the thing to watch, is going to be guidance, is going to say, “Are any of these CEOs in these boards getting spooked by everything that’s going on, and are they going to pull back on what they see happening over the next quarter or year?” I think that could be somewhat of a shocker to the system and could actually cause more selling if investors feel that these tech CEOs and leaders are not willing to bang their fist on the table and say, “The future is bright.”
Having said that, even if they do come out, soft earnings tech will prevail. I’m not saying that just because I love tech. I’m saying that because even if companies are going to look to cut costs and become more efficient, Pat, they are going to have to do it with automation, with AI, with data and analytics and services and software. That’s what’s going to allow them to be more efficient in running their businesses. So one way or another, tech will prevail. Put that on the bottom, ending the show here, hot and heavy.
Author Information
Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.
From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.
A 7x Best-Selling Author including his most recent book “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor.
An MBA and Former Graduate Adjunct Faculty, Daniel is an Austin Texas transplant after 40 years in Chicago. His speaking takes him around the world each year as he shares his vision of the role technology will play in our future.
