SAP Reports 31 Percent Growth In Cloud Revenue For 2016

SAP recorded more than 30 percent revenue growth from its cloud software and support offerings in both its fourth quarter and for all of 2016, the company said Tuesday.

"We again delivered strong software sales, fast cloud growth, and operating income expansion," said CEO Bill McDermott, speaking on a conference call with financial analysts. "Cloud revenue powered to 31 percent growth and this is on par or better than best-of-breed standalone cloud companies," he said.

SAP, once primarily known for its on-premises ERP applications, has been transforming itself into a supplier of cloud services, platforms and Software-as-a-Service applications, the latter including the S/4HANA Cloud software, Business ByDesign, SuccessFactors HR applications, and Hybris sales and marketing cloud applications.

[Related: SAP Executive Talks About SAP Leonardo, Its $2.2 Billion Investment In IoT And Partner Opportunities]

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The vendor also said that adoption of its next-generation S/4HANA ERP application suite, which debuted in February 2015, doubled in 2016 to more than 5,400 customers. That included some 1,300 new S/4HANA customers in the fourth quarter – approximately 30 percent of which were net-new SAP customers.

For the fourth quarter ended Dec. 31, SAP reported total revenue of 6.72 billion euros (U.S. $7.23 billion), up 6 percent from 6.34 billion euros ($6.82 billion) in the fourth quarter of 2015. After-tax profit for the quarter was 1.51 billion euros ($1.62 billion), up 18 percent from 1.28 billion euros ($1.37 billion) one year earlier.

Cloud subscriptions and support revenue in the fourth quarter grew 31 percent year over year to 827 million euros ($888.6 million).

But traditional software license sales still account for the bulk of SAP's revenue. In the fourth quarter software license and support revenue was 4.93 billion euros ($5.30 billion).

"The facts clearly demonstrate that our strategy has delivered for the shareholders of SAP," McDermott said. "Since 2009, we have more than doubled the revenue, operating income, and the market cap of SAP. No other company can report growing software sales, fast-growth cloud businesses and expanding operating income."

Many vendors that got their start with on-premises software have been making the migration to cloud products. But managing the transition can be tricky. Technology Business Research analyst Kelsey Mason, in a review of SAP's earnings, said SAP – unlike some other software vendors – has managed to grow cloud revenue while maintaining on-premises software sales.

"SAP ended 2016 on a high note, bucking the trend of traditional software peers with growth in both its cloud and on-premises software businesses, coupled with operating margin improvement," Mason wrote. "Taking a multi-deployment model approach to ERP has paid off as SAP Business Suite 4 SAP HANA (S/4HANA) momentum is largely responsible for single-digit on-premises growth, while 31 [percent] year-to-year cloud [growth] continues to be driven by a combination of S/4HANA, workforce management and business network offerings."

SAP is also generating new revenue streams through its push into SMB markets, leveraging its partner ecosystem and products like Business ByDesign and the upcoming S/4HANA Public Cloud, Mason noted.

For all of 2016 SAP reported total revenue of 22.06 billion euros ($23.74 billion), up 6 percent from 20.79 billion euros ($22.32 billion) in 2015. Profit after tax for the year was 3.62 billion euros ($3.89 billion), up 18 percent from 3.06 billion euros ($3.29 billion) in 2015.

For the year, cloud subscriptions and support revenue grew 31 percent to 2.99 billion euros ($3.21 billion). Revenue from traditional software license sales and support was 15.43 billion euros ($16.57 billion) for all of 2016, up 3 percent from 2015.

SAP expects cloud subscription and support revenue to grow as much as 34 percent in 2017 to between 3.8 billion and 4.0 billion euros. By 2020 the company expects that revenue to reach 8.0 billion to 8.5 billion euros.