The year 2020 has proven to be full of sur­pris­es — both good and bad — for orga­ni­za­tions across the globe, includ­ing SAP. Ear­li­er this year in its first quar­ter 2020 earn­ings call, SAP announced that Chris­t­ian Klein would take the helm as sole CEO of the soft­ware com­pa­ny. Despite the pan­dem­ic, com­pa­ny lead­ers shared that over­all prof­it was up 7% year over year. 

Klein assured cus­tomers, part­ners, and investors at the time that he was ready to make the deci­sive and quick deci­sions required to weath­er the storm ahead. Accord­ing to the announce­ments that came out of the Q2 earn­ings call, he has done just that. 

“This is our sec­ond quar­ter­ly earn­ings call dur­ing the pan­dem­ic, but our first full quar­ter under the COVID-19 impact,” he said. ​“And giv­en the sit­u­a­tion, it was a fan­tas­tic one. Our results reflect the progress we have made as a com­pa­ny since the pan­dem­ic hit in March. And we have adapt­ed to the sit­u­a­tion by tru­ly trans­form­ing into a vir­tu­al orga­ni­za­tion and allow­ing cus­tomers to con­tin­ue with their businesses.” 

The com­pa­ny report­ed a $7.9 bil­lion prof­it for the sec­ond quar­ter, with an oper­at­ing prof­it of $1.5 bil­lion, up almost 2 per­cent­age points.

4 Focus Areas for SAP

Orga­ni­za­tions and con­sumers alike have been work­ing to bet­ter nav­i­gate the cur­rent busi­ness land­scape and under­stand what it means in terms of future growth and resilien­cy. Klein point­ed to four spe­cif­ic areas of focus for SAP, which includ­ed con­cen­trat­ing on SAP’s exist­ing mar­kets, accel­er­at­ing growth by expand­ing into new mar­kets, pro­mot­ing sus­tain­abil­i­ty and Cli­mate 21, and last but not least, pro­vid­ing new options for cus­tomers to move to the cloud.

“The results from Q2 show, yet again, how well our intel­li­gent enter­prise strat­e­gy is res­onat­ing with cus­tomers,” Klein said. ​“They com­plete­ly under­stand that dig­i­tal­iza­tion is no longer an option, but a must.”

As for the rest of the Q2 earn­ings call, ASUG iden­ti­fied these five things that cus­tomers should know:

1. The $8‑Billion Ele­phant Is About to Get Bigger 

SAP dropped some big news on the evening before the Q2 earn­ings call: Qualtrics is going pub­lic. SAP is in the process of prepar­ing Qualtrics for an IPO, while assur­ing cus­tomers that it will retain a major­i­ty own­er­ship of the expe­ri­ence man­age­ment platform. 

Qualtrics’ rev­enue went up 34% year over year to $197 mil­lion in Q2. With 11,800 cus­tomers, Klein point­ed out, ​“Qualtrics had yet anoth­er fan­tas­tic quar­ter with strong growth and is help­ing us to dif­fer­en­ti­ate our core appli­ca­tions by adding expe­ri­ence management.” 

Although SAP is still in the process of final­iz­ing the IPO, which will depend on mar­ket con­di­tions, Klein not­ed that he and Qualtrics cofounder Ryan Smith ​“are con­vinced that the pro­posed par­tial IPO marks a win-win sit­u­a­tion and cre­ates the best set­up for Qualtrics to ful­ly tap the poten­tial of a fast-grow­ing expe­ri­ence man­age­ment market.”

2. A Steady Flow Upward to the Cloud 

Accord­ing to CFO Luka Mucic, cloud rev­enue increased 19%. This reflects the strength of SAP’s con­trac­tu­al­ly com­mit­ted cloud busi­ness, which was par­tial­ly coun­tered by low­er ​“pay as you go” trans­ac­tion­al rev­enue, due to the COVID-19 cri­sis. ​“This cloud rev­enue growth — togeth­er with our con­sis­tent soft­ware-sup­port rev­enue stream — demon­strates the resilience of our busi­ness mod­el,” he said. ​“In Q2, our cloud and soft­ware rev­enue grew by 3%. For the first six months, our cloud and soft­ware rev­enue were up 5% or 4% at con­stant cur­ren­cies, a very strong show­ing giv­en the impact of COVID-19.” 

In the first quar­ter of this year, Klein sug­gest­ed that although COVID-19 had caused some cus­tomers to post­pone cloud and soft­ware licens­ing con­tracts, the cloud back­log at that time had increased by 25%. His expec­ta­tions were that this busi­ness would con­tin­ue to see rapid growth in 2020. 

“Go-lives in the cloud are hap­pen­ing now in weeks rather than months,” Klein said dur­ing the Q2 earn­ings call. ​“This shows how SAP enables our cus­tomers to react with agili­ty and speed in this cri­sis. As we have said before, SAP is cru­cial to the busi­ness trans­for­ma­tion of our cus­tomers, and we are work­ing to emerge stronger out of the crisis.”

3. SAP S/4HANA Is at the Core of Intelligence 

Ear­li­er this year, SAP saw cus­tomers post­pon­ing their SAP S/4HANA projects due to uncer­tain­ty around COVID-19. But it appears that more orga­ni­za­tions are now com­fort­able with keep­ing things mov­ing. SAP reports to have added more than 500 new SAP S/4HANA cus­tomers in the sec­ond quar­ter, result­ing in a 22% increase year over year. ​“Near­ly 40% of the 500 are net new,” Klein stat­ed. ​“We have also seen more than 700 cus­tomers go live on SAP S/4HANA in Q2.

Accord­ing to a joint study between ASUG and DSAG, COVID-19 has not led to a change in SAP S/4HANA adop­tion. In fact, both user groups report cus­tomers are plan­ning to move with­in the next one to five years. 

“I’m very excit­ed about the Novem­ber 2020 release com­ing for SAP S/4HANA pub­lic cloud,” Klein said. ​“There will be again major improve­ments includ­ing new busi­ness con­fig­u­ra­tion, as well as the open­ing up of more fea­tures and func­tions.” Klein added that by the end of the year, 90% of the inte­gra­tion planned for SAP S/4HANA will be com­plet­ed. ​“This will not only be a tech­ni­cal inte­gra­tion,” Klein added, ​“but it will include har­mo­niz­ing our data domain mod­el, as the seman­tics of the data have to fit togeth­er when you talk about seam­less busi­ness processes.” 

“We know from our 2020 ASUG Pulse of the SAP Cus­tomer sur­vey that inte­gra­tions — both with SAP and non-SAP prod­ucts — present the num­ber-one tech­nol­o­gy chal­lenge for ASUG mem­bers,” ASUG CEO Geoff Scott said. ​“The com­plex­i­ty of our tech­nol­o­gy land­scapes today is too con­strict­ing. That being said, SAP has made a com­mit­ment to improv­ing inte­gra­tion chal­lenges, par­tic­u­lar­ly between its own prod­ucts and with SAP S/4HANA.”

4. Word on the Street 

All things con­sid­ered, this was a pos­i­tive earn­ings call. As many orga­ni­za­tions are tak­ing hits this year, SAP has been able to rise above the uncer­tain­ty and present num­bers reflec­tive of growth. ​“It proves that dig­i­tal trans­for­ma­tion is a reces­sion-proof con­cept,” said indus­try ana­lyst and SAP observ­er Josh Green­baum. ​“It [dig­i­tal trans­for­ma­tion] may even be trag­i­cal­ly favored by reces­sion. If you’ve got the cap­i­tal, this is the moment to clean house and get ready for the next recov­ery. That’s a sto­ry that we saw in this earn­ings call.”

Although dig­i­tal trans­for­ma­tion is still top of mind for many orga­ni­za­tions look­ing to nav­i­gate this new busi­ness land­scape, it wasn’t lost on any­one that SAP slipped in the Qualtrics announce­ment with­out much detail. 

Diginomica’s Den Howlett penned his thoughts in the ear­ly hours as the news broke. ​“Just as I was hop­ing to get a rare good night’s sleep, SAP announced its intent to IPO Qualtrics,” he wrote. He pro­vides sev­er­al dif­fer­ent ratio­nales for the move, includ­ing that per­haps expe­ri­ence man­age­ment is a poor fit for SAP right now. And an IPO would pro­vide SAP with much-need­ed cash flow. Howlett con­cludes that this is not a done deal and there is still more to be revealed. 

Green­baum, on the oth­er hand, not­ed that he thinks the news is a pos­i­tive move for both SAP and Qualtrics. ​“I think it was a bit of a tight fit to get these two com­pa­nies togeth­er on a cul­tur­al lev­el. This move involves under­stand­ing the val­ue and split­ting the two enti­ties apart, but with­out real­ly divorc­ing com­plete­ly. It’s a nice compromise.”

“Right now, there are still more ques­tions than answers on how this will affect cus­tomers,” ASUG’s Scott said. ​“The qual­i­ty of the Qualtrics prod­uct remains high, and there’s much trust in Chris­t­ian and the lead­er­ship team to do the right thing to take care of all SAP cus­tomers. ASUG will be work­ing with SAP to ensure that cus­tomers’ Qualtrics ques­tions are answered in a time­ly fashion.”

5. Trans­for­ma­tion Leads to Innovation 

Klein start­ed the year call­ing for bold moves, and so far, he’s fol­low­ing through. SAP remains posi­tioned for resilien­cy and growth through this year and will like­ly con­tin­ue to adjust when nec­es­sary. ​“Our broad solu­tion port­fo­lio, our unmatched indus­try and geo­graph­ic diver­si­fi­ca­tion, cou­pled with our strong base of more pre­dictable rev­enue have allowed us to weath­er the COVID-19 cri­sis this quar­ter,” CFO Mucic said. ​“Our quick response to the cri­sis on the cost side drove strong oper­at­ing prof­it and mar­gin expan­sion. With dis­ci­plined invest­ments in strate­gic growth areas, we are con­fi­dent we will not only weath­er the cri­sis but emerge from it even stronger.” 

Klein stat­ed that the 2023 ambi­tions SAP set out at the begin­ning of the year have not changed. ​“That said,” he not­ed, ​“we are in the process of updat­ing our strat­e­gy. We are refo­cus­ing the com­pa­ny, iden­ti­fy­ing growth areas, and eval­u­at­ing addi­tion­al busi­ness opportunities.”

By 2023, SAP wants to triple its cloud rev­enue and bring in more than $41 bil­lion in total revenue. 

“Let me make one thing clear,” Klein said. ​“We will con­tin­ue to man­age this com­pa­ny for val­ue, not short-term mar­gin max­i­miza­tion. If we believe a strate­gic move is wise, if we think it makes sense to accel­er­ate the cloud migra­tion of our cus­tomer base, if we see an oppor­tu­ni­ty to grow where we have a way to win, we will inves­ti­gate, and not pass by default just because rev­enue mix shift might have an adverse impact on oper­at­ing mar­gin in the short run.”

ASUG mem­bers can join us for dis­cus­sions like this with ASUG lead­er­ship at one of our vir­tu­al ASUG Exec­u­tive Exchange events to learn and net­work with oth­er exec­u­tives look­ing to get more val­ue from their SAP systems.