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What’s Underpinning SAP’s Confidence?

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New cloud bookings jump 37%

SAP SE (SAP) raised its 2018 guidance for revenue and profit based on the strength of its cloud business. The company’s cloud subscription revenue soared 41% YoY (year-over-year) in the third quarter, with its management saying that its cloud subscription business was eclipsing its traditional software license business faster than expected. Its software subscription business was 40% larger than its software license business at the end of the third quarter.

SAP said its new cloud bookings jumped 37% in the third quarter, providing another basis for the company to raise its outlook for 2018.

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Cloud strength felt companywide

SAP is now expecting to generate total revenue of up to $28.8 billion in 2018. The company previously expected revenue of up to $28.5 billion for the year. The company lifted its operating profit guidance for 2018 to up to $8.5 billion from ~$8.4 billion previously.

SAP posted operating profit of ~$7.8 billion on revenue of $26.5 billion in 2017.

Encouraging clients to move to the cloud

As part of its efforts to encourage its customers to transition to its cloud services, where it sees a brighter future, SAP is cooperating with leading cloud companies Amazon (AMZN), Microsoft (MSFT), IBM Corporation (IBM), Google (GOOGL), and Alibaba (BABA). These five companies combined control ~66% of the global cloud market, according to the latest estimates from Synergy Research Group, making them crucial strategic partners for SAP in its cloud transition efforts.

In the software business, SAP is big in the enterprise resource planning software market but is seeking to expand its foothold in the rapidly growing customer-relationship management software market.

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