SAP Reports Strong Cloud Sales Momentum As Q4 Revenue Surges 16 Percent

Fueled by rapid growth in new bookings for its cloud services and surging adoption of its S/4HANA flagship software, SAP Friday reported double-digit revenue growth for both its fourth quarter and for all of 2015.

SAP has been transforming itself from its longtime focus on selling on-premise ERP and other operational applications into a provider of cloud software for businesses of all sizes. So far the company has successfully managed the shift, reporting growth in both cloud service bookings and in its core software license sales.

"Our completeness of vision in the cloud has distinguished SAP from both legacy players and point solution providers," said CEO Bill McDermott, in a statement accompanying the earnings results. "We beat on cloud and software, we beat on operating income and we are ever confident that SAP will remain a profitable growth business well into the future."

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For the fourth quarter ended Dec. 31, SAP reported total revenue of 6.35 billion Euros (U.S. $6.87 billion), up 16 percent from 5.46 billion Euros (U.S. $5.91 billion) in the fourth quarter of 2014.

Software licenses and support revenue climbed 13 percent year over year to 4.75 billion Euros (U.S. $5.13 billion). That's significant because it indicates that SAP's traditional software license business remains strong even as it grows the cloud computing side of its business.

The company reported strong momentum for its SAP Business Suite 4 HANA (S/4HANA), the new generation of the company's core ERP and financial applications that began shipping last year. SAP said that as of the end of the quarter it had 2,700 S/4HANA customers, more than doubling from the third quarter. The software, running on the company's HANA in-memory database, is offered for both on-premise and cloud deployment.

"Our strength in 2015 shows that the S/4HANA innovation cycle is well under way," McDermott said.

The company also reported strong sales of its human capital management applications, led by the SuccessFactors Employee Central cloud application set, as well as for its customer engagement and commerce applications.

The company reported that fourth-quarter revenue from cloud subscriptions and support grew 81 percent year over year to 632 million Euros (U.S. $683.7 million). New cloud bookings increased 75 percent year over year to 344 million Euros (U.S. $372.7 million).

The Walldorf, Germany-based company said cloud subscriptions and support revenue could reach 4 billion Euros (U.S. $4.33 billion) by 2017.

Overall, fourth-quarter revenue from cloud and software surged 18 percent to 5.38 billion Euros (U.S. $5.83 billion) from 4.56 billion Euros (U.S. $4.94 billion) in the fourth quarter of 2014.

But cloud software brings lower profit margins and that was reflected in the company's bottom line. After-tax profit for the fourth quarter was down 2 percent year over year to 1.28 billion Euros (U.S. $1.39 billion).

For all of 2015 SAP reported that revenue grew 18 percent to 20.80 billion Euros (U.S. $22.50) from 17.56 billion Euros (U.S. $18.99) in 2014. That included 20 percent growth in cloud and software revenue to 17.22 billion Euros (U.S. $18.62 billion) and 110 percent growth in cloud subscriptions and support to 2.29 billion Euros (U.S. $2.47 billion).

Profit after taxes for all of 2015 was 3.06 billion Euros (U.S. $3.31 billion), down 7 percent from 3.28 billion Euros (U.S. $3.55 billion) in 2014.