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SAP’s Shares Failed to Surge despite a Positive Guidance

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SAP’s S/4 HANA saw greater traction

So far, we discussed SAP’s (SAP) recent fiscal 4Q15 and 2015 results. SAP’s cloud offerings are gaining traction as evident by triple-digit growth in fiscal 2015. The strong dollar in comparison to the euro (EWG) also played a significant role in SAP’s growth in 2015. SAP stated that its new flagship ERP[1. Enterprise resource planning] platform—SAP Business Suite 4 SAP HANA, or SAP S/4 HANA—saw increased adoption. This could be seen in the greater customer count as it more than doubled on a sequential basis to reach 2,700+ in fiscal 4Q15.

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Earlier, SAP’s cloud strategy revolved around SAP HANA. Now, it transferred to S/4 HANA. This is why SAP’s S/4 HANA performance is carefully scrutinized to judge the company’s performance in the cloud space. In the past, SAP adopted the partnership route with its peers like Microsoft (MSFT), Hewlett-Packard (HPQ), and VMware (VMW) to increase SAP HANA adoption.

Though SAP’s transition toward the cloud would be instrumental for the company’s greater revenue growth, it would negatively impact its margins and consequently its profitability. It’s very likely that a reduction in the company’s margins in the future—and management’s acceptance of this fact—contributed to the lack of a rally in SAP’s shares after the fiscal 4Q15 results on January 22, 2016. On January 11, 2016, when the company divulged preliminary fiscal 4Q15 results, positive expectations led the stock to surge.

2016 expectations

SAP stated that it expects its cloud and software revenue to grow 6%–8% on a year-over-year basis in constant currency terms in 2016. Cloud subscription/support revenue and operating profit are expected in the ranges of 2.95 billion–3.05 billion euros and 6.4 billion–6.7 billion euros, respectively, in constant currency terms.

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