SAP has broken the 1 billion Euros threshold in quarterly cloud sales, the company said Tuesday, reporting revenue of 1.07 billion Euros generated by cloud subscriptions and support services in the company's first quarter of 2018.
But that 18 percent gain in cloud-related revenue wasn't enough to offset a decline in sales of traditional software licenses, leading to essentially flat revenue, year over year, in the quarter.
"This is the first quarter that the cloud revenue in our company has crossed the 1 billion Euro threshold," said CEO William McDermott in an earnings call with Wall Street analysts. "Cloud bookings grew by 25 percent on top of an exceptionally strong prior year growth of almost 50 percent. This is a robust result and we expect strong bookings growth over the course of the year in-line with our cloud ambition."
SAP has been transitioning from its legacy business of selling on-premise ERP applications to large corporations to providing a range of cloud applications, including both front- and back-office software, to customers of all sizes.
McDermott acknowledged that transition has sometimes been difficult, as with the slight year-over-year revenue decline in the first quarter.
"SAP has once again delivered a very strong quarter. Several of you have noted in your outlook for 2018 that we faced a challenging Q1 comparison based on last year’s remarkable performance," the CEO said on the call. "As you can see in these results today, SAP doesn’t shrink from the challenge, we rise to it."
McDermott also disclosed on the earnings call that at the upcoming Sapphire conference in June SAP will unveil a "comprehensive portfolio of solutions to transform the front office," incorporating applications from the company's recent acquisitions of Callidus Cloud and Gigya.
The CEO said the new products are key to SAP's goal to "retake the lead [market] position in CRM," a reference to cloud CRM archrival Salesforce.com.
Later in the call, without naming Salesforce directly, McDermott took a jab at SAP's CRM competition by saying that "so-called cloud CRM is nothing more than overpriced software running on first-generation SaaS architecture. Our objective is simple, help legacy CRM go the way of the legacy database."
McDermott also said that SAP now has 8,300 customers using the vendor's flagship S/4HANA line of cloud ERP applications, a 43 percent increase year over year.
Total revenue for the quarter ended March 31 was 5.26 billion Euros ($6.40 billion), down less than 1 percent from 5.29 billion Euros ($6.43 billion) in the first quarter of 2017.
After-tax profit for the quarter was 708 million Euros ($862.5 million), up 33 percent from 530 million Euros ($645.7 million).
Cloud subscriptions and support revenue in the quarter was 1.07 billion Euros ($1.03 billion), up 18 percent from 905 million Euros ($1.10 billion) one year ago. But software licenses and support revenue declined 4 percent to 3.28 billion Euros (just under $4 billion) from 3.42 billion Euros ($4.17 billion) one year earlier.
SAP also reported that "predictable revenue," recurring revenue from subscriptions, accounted for 71 percent of SAP's revenue, up from 69 percent in the first quarter of 2017.