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Can SAP’s Fiscal 2Q16 Results Beat Analyst Expectations?

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Jul. 14 2016, Updated 4:56 p.m. ET

Analyst expectations for SAP’s fiscal 2Q16

In this earnings season, SAP AG (SAP), a Germany-based (EWG) enterprise software company, is scheduled to announce its fiscal 2Q16 earnings on July 20, 2016. For fiscal 2Q16, Jeffries Group expects SAP to report non-IFRS (International Financial Reporting Standards) EPS (earnings per share) of 0.70 euros, or about $0.78.

In fiscal 1Q16, SAP reported revenues of 4.7 billion euros, or about $5.2 billion, and non-IFRS (International Financial Reporting Standards) EPS (earnings per share) of 0.64 euros, or about $0.71, which failed to meet analyst expectations by 40 million euros, or about $44.5 million, and 0.03 euros, or about $0.033, respectively.
SAP revenue

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SAP blamed the delay in the signing of some deals for its lower-than-expected revenue growth in fiscal 1Q16. Bill McDermott, SAP’s CEO, said that though the deal’s slippage led to lower revenues in fiscal 1Q16, it would improve the company’s fiscal 2Q16 growth. In its 1Q16 earnings, SAP stated that it has “high visibility into a strong second quarter.”

SAP’s initiatives to record growth in cloud

Similar to peers Microsoft (MSFT), IBM (IBM), and Oracle (ORCL), SAP is currently undergoing a transition to a web-based subscription model from traditional licensed software. Subscription-based revenues are preferred because they lead to more predictable recurring revenues.

Although SAP’s cloud revenues reported triple-digit growth in fiscal 2015, the company’s traditional software licenses and support still form the bulk of the company’s revenue. Despite double-digit growth, cloud services contributed less than 15% of SAP’s overall revenues in fiscal 1Q16.

In this series, we’ll discuss SAP’s cloud strategy and the impact of the UK’s “Brexit” from the EU, as well as the potential effects of the weakening euro and the strengthening US dollar on SAP’s fiscal 2Q16 results.

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