The past few quarters have been interesting ones for SAP. Not only did the software company unveil its plans to realign its strategy, but it also—like virtually every other company operating today—had to contend with the COVID-19 epidemic and over a year of remote working for many office workers around the world.
“Let me sum it up. Last year, we have updated our strategy [and] completed the realignment of the company to focus SAP on the success of our customers,” said Christian Klein, SAP CEO. “Now we are in execution mode, and the future for SAP is bright. Q1 was a perfect start and growth point for our strategy. RISE with SAP already worked as an accelerator for customers’ business transformation in the cloud.”
Throughout the call, Klein, along with SAP CFO Luka Mucic and Scott Russell, head of customer success organization at SAP, highlighted some of the positive financial trends the company has seen over this first quarter of the year.
“Looking at the bottom line, we achieved the highest Q1 operating profit in our history,” said Klein. “This quarter was one of the strongest quarters in the history of SAP.”
While total revenue for the first quarter decreased to €6.35 billion, a three percent drop for the same period last year, Klein and Mucic were particularly upbeat about many of the other financial trends the company has seen since January. SAP also reported 4,800 net-new customers and delivery of over 6,000 different go-lives. Additionally, the company reported growth in its software as a service (SaaS) and platform as a service (PaaS) solutions outside Intelligent Spend by 24%, which includes a 43% growth of SAP S/4HANA Cloud.
“I couldn't be more proud of what our teams have achieved this quarter,” Klein said. “This was such an amazing start into 2021, and our performance clearly confirms our strategy to drive business transformation in the cloud. We saw competitive trends in our entire cloud business, clearly winning in a growing market with strong order entry growth across our portfolio.”
Here are some highlights from the SAP Q1 2021 earnings call.
To the Cloud!
One of the main stories to come out of the earnings call was the progress SAP made in its cloud business. Klein referred to this first quarter as a “blowout quarter in the cloud,” emphasizing the growth in this particular part of the business SAP saw over the past few months.
“We saw the fastest growth in new cloud business in five years, which boosted our current cloud backlog, up 19%, a sequential acceleration of 5 percentage points,” he said.
Cloud revenue was up, with SAP reporting €2.14 billion in cloud revenue, a 13% growth at continuing costs. This is particularly good news, given the cloud-first approach SAP has recently taken. SAP also reported that the current cloud backlog—a financial metric created by SAP to measure the amount of cloud revenue it plans on recognizing over the next year—has increased 19% for a total of €7.6 billion.
“This was driven by a sharp acceleration in new cloud business across our portfolio, as well as a strong start for RISE with SAP,” said Mucic.
Strong Start for RISE with SAP
RISE with SAP was also a key focus of the earnings call, with both Klein and Mucic referring to the new SAP offering. Introduced back in January, RISE with SAP was described by Klein as “business transformation as a service.” The main goal of this new bundled offering is to help SAP customers implement SAP S/4HANA, move to the cloud, and become “intelligent enterprises,” in a simplified manner. RISE with SAP not only provides SAP customers with the road map and workflows necessary to make this transition, but also bundles together processes necessary to move to SAP S/4HANA with assistance from SAP and the customer’s choice of hyperscaler.
This first earnings report of the year was a key indicator of the initial performance and interest surrounding RISE with SAP, along with SAP customers’ interest in the cloud. Both Klein and Mucic were bullish in describing the performance of this new offering.
“RISE [with SAP] is already a game changer,” said Klein. “Only two months after market introduction, [it is] the best offering in the market for business transformation.”
He furthered described RISE with SAP as a “massive early success,” highlighting the fact that SAP has “already closed more than 100 deals in Q1 alone.” Mucic credited RISE with SAP with a portion of the growth of the total current cloud backlog. Because of the success of RISE with SAP, the software company is expecting the bundled subscription offering to have somewhat of an effect on software license sales, telling the audience that SAP is expecting software license revenue to decline throughout the year “as more and more customers will turn to the RISE with SAP subscription offering”
“When I first learned about RISE with SAP, I was optimistic that the offering would encourage SAP customers to take advantage of all the opportunities available in the cloud,” said Geoff Scott, CEO of ASUG. “This early success of RISE with SAP is exciting because it shows that SAP customers have a strong interest in moving to the cloud and ultimately becoming intelligent enterprises.”
Comments on Oracle and Customers
Klein also took time to indirectly address comments made by Oracle CTO Larry Ellison during that organization’s own earnings call last month. During that call, Ellison commented on the competition between SAP and Oracle in the cloud ERP market, before reading off a list of over 100 organizations that either had already moved from SAP ERP to Oracle Fusion EPR or were taking steps to make the transition happen.
“We cannot let recent unfounded claims made by one of our competitors go entirely uncommented. Personally, I see it as a very positive sign that one of our main competitors spends so much time talking about SAP on their own earnings call,” Klein said.
Klein went on to discuss recent IDC ERP data—which places SAP ahead of Oracle in global ERP revenue—before highlighting a few noteworthy customers. One of the customers Klein touched on was Google. This was of particular interest because a few weeks after Ellison’s comments, Google’s parent company Alphabet announced that it would cease using Oracle financial software and begin using SAP. Klein also took time to discuss Toshiba and included a slide in the presentation that listed a few competitive wins and go-lives from the quarter, including AstraZeneca, Chobani, Kia, Peloton, and Yamaha.
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