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SAP Reports 30 Percent Cloud Software Sales Growth In Q2

CEO McDermott touts momentum of new C/4HANA application suite against CRM rivals.

SAP's cloud software sales grew 30 percent in the second quarter and the software company has set a goal of having its "predictable" cloud subscription and software support revenue account for 70 to 75 percent of its sales in 2020.

The company also raised its overall outlook for the rest of 2018, forecasting that total revenue for the year will reach between 24.98 billion euros and 25.30 billion euros ($29.00 billion and $29.37 billion). Net operating profit is expected to be in the range of 7.4 billion and 7.5 billion euros ($8.58 billion and $8.71 billion).

"SAP's trifecta of strong software and support sales, fast cloud growth and operating income expansion is now the gold standard in the industry," said CEO Bill McDermott in a call with financial analysts. "Our market share gains continued in Q2 as cloud revenues soared 40 percent year-on-year in constant currencies."

[Related: SAP Unveils Blockchain And Machine Learning Offerings, Expands Its PaaS System To Azure And Google Cloud]

For the second quarter ended June 30 SAP reported that total revenue was just under 6 billion euros ($6.97 billion), up 4 percent from 5.78 billion euros ($6.71 billion) in the second quarter of 2017. After-tax profit was 720 million euros ($836.0 million), up 8 percent from 666 million euros ($773.4 million) one year ago.

SAP has been transitioning its business from its traditional focus on software license sales for on-premise deployments to cloud software sold by subscriptions. McDermott noted that in the quarter cloud software bookings, in constant currency, increased 29 percent year over year.

SAP sells its core software products, including its S/4HANA line of ERP applications and HANA database platform, for both on-premise and cloud deployments. But some of its other products are Software-as-a-Service only, including the SuccessFactors human resource management application and Concur travel expense management application.

The company reported that the number of S/4HANA customers reached 8,900, up 41 percent year over year. But the company does not disclose how many S/4HANA sales are for on-premise versus cloud deployments.

At its Sapphire Now annual conference last month, SAP unveiled SAP C/4HANA, the vendor's new suite of CRM applications that incorporate acquired products including Hybris, Gigya and Callidus Cloud.

Tuesday SAP said sales of those applications achieved "high double-digit year-over-year growth" in the second quarter in new cloud bookings. Total sales of "customer experience" applications in the second quarter reached 242 million euros ($280.8 million).

"The C/4 HANA front office suite is playing in a different league than sales force automation," McDermott said, in a not-so-veiled reference to Salesforce.com, SAP's chief rival in the CRM market. "Our organic growth is more than 5 times our primary competitor in this segment. Our pipeline for the remainder of the year has accelerated dramatically."

Cloud subscriptions and support revenue in the quarter reached 1.21 billion euros ($1.41 billion), up 30 percent from 932 million euros ($1.08 billion) one year ago. That accounts for a little more than 20 percent of the company's total revenue for the quarter.

Cloud revenue surpassed the 1 billion euros threshhold for the first time in the first quarter of this year.

SAP has set a goal of having annual cloud subscription and related support revenue reach between 8.2 billion and 8.7 billion euros ($9.52 billion and $10.10 billion) in 2020.

Sales of traditional software licenses and related support in the second quarter were 3.73 billion euros ($4.33 billion), down 2 percent from 3.83 billion euros ($4.44 billion) in the same quarter one year earlier.

SAP said "predictable" revenue accounted for 66 percent of total sales in the second quarter. Predictable revenue includes cloud subscription sales and related support revenue, plus support revenue tied to software licenses.

That puts the company within range of its goal of having predictable revenue account for between 70 and 75 percent of all revenue in 2020. Currently SAP is forecasting that total revenue that year will be between 28 billion and 29 billion euros ($32.50 billion and $33.66 billion).

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