With one full quarter under their leadership, the two SAP co-CEOs—Jennifer Morgan and Christian Klein—reported double-digit growth across all key revenue lines for Q4 2019. “Q4 was a strong finish to yet another record year,” Klein said. “And once again, we have kept our promise and delivered on our raised business outlook.”

SAP closed the year strong with total revenue at $30 billion (up 12% year-over-year). CFO Luka Mucic said, “gross margins were up for all business models as SAP hit all its 2019 revenue and profit targets.” During the earnings call, the CEOs reported that operating profit was also up 15% and cloud revenue was up 40%. “Our on-premise business continues to grow, and our cloud business continues to soar,” Klein added.

When the two co-CEOs stepped into their roles just three months ago, they both agreed that SAP is best when it listens to its customers. Those weren’t just idle words, as the duo has kept up the message, though customer sentiment and adoption will be the ultimate decider. “Successful and satisfied customers remain front and center for achieving long-term growth and profitability goals, Morgan said. “This starts with engineering world-class products.”

ASUG identified these five things that customers should know based on the discussions in the SAP Q4 2019 earnings call.

1. The Cloud Floats In

    The German software company doubled down on pivoting its cloud business toward the software-as-a-service category, which typically delivers more predictable revenue streams. Cloud bookings were up 25%—and 31% when excluding infrastructure as a service. Although that number wasn’t quite as high as in Q3, it still reflects an overall trend toward cloud adoption.

    The cloud gross margin was up 5 percentage points year over year. “We are steadily increasing the efficiency of our cloud delivery, and we continue to leverage our hyperscale partners,” Klein added.

    Last year, SAP announced a Microsoft Embrace deal that positioned the cloud provider as the preferred hyperscaler for SAP. “This was to help our customers not only embrace SAP S/4HANA,” Morgan said, “but to be able to accelerate their move into the cloud with SAP.” The move has paid off, and SAP says it sees the benefits of the partnership show up in Q4 numbers. “We’re off to a fast start,” Morgan said. “We’re also seeing our partners and other hyperscalers create their own move programs to help SAP customers accelerate their journey into the cloud.” As SAP looks ahead, it wants to more than triple cloud revenue by 2023, so ASUG members need to be aware of their hyperscaler options. We will have more programming available in 2020 to help SAP customers determine the best option for their business needs. 

    2. Moving the Needle on SAP S/4HANA

      SAP S/4HANA remains a big player, as SAP announced 1,200 new customers in the fourth quarter. “2019 was an extremely good year for SAP S/4HANA,” Klein said. “More than 7,000 of the 13,800 customers who have purchased SAP S/4HANA are now live.” That has more than doubled since the last time SAP released numbers, which was during SAPPHIRE NOW and ASUG Annual Conference 2019.

      That trend will likely continue into 2020 and beyond as more customers are beginning to plan a move to SAP S/4HANA. As Klein noted, and according to the ASUG Pulse of the SAP Customer 2020, customers are beginning to see the value of the ERP solution. “I’m very confident that we’ll see these kinds of results going forward,” Klein stated. “Organizations are turning more and more to SAP to drive their digital transformations, and the heartbeat of that is our core—SAP S/4HANA.

      Of the SAP S/4HANA totals, 2,000 customers—from 20 different industries in more than 70 countries—are on SAP S/4HANA Cloud. “We are now double the size of our next competitor,” Klein said. As for why more companies aren’t live yet, Klein added, “the technology is not the difficulty. It works. What takes time is the digital transformation. And together with SAP, we’ll work toward that.”

      ASUG CEO Geoff Scott acknowledged that SAP S/4HANA adoption is one of the most-discussed metrics today, but there’s much more to it. “It’s not just about acquiring the SAP S/4HANA licenses—it’s about what you’re going to do with those licenses,” Scott said. “The move should be about eliminating technical roadblocks and barriers of the past, and then fostering a climate where companies can take advantage of new business opportunities as a result of a nimbler technology backbone.”

      3. Tapping into End-to-End Experience

        In Q3, SAP reported that segment revenue in customer and experience management was up 75%, due to Qualtrics and SAP C/4HANA. The $8 billion elephant in the room—Qualtrics—contributed more than $500 million to the total revenue in 2019, and SAP will continue to invest in it.

        “In the coming year,” Morgan said, “Qualtrics will be a real strong growth driver, not just on its own, but to enhance and help us evolve categories and other parts of our portfolio.” SAP plans to focus on integration, particularly with customer experience (SAP C/4HANA), human experience (SAP SuccessFactors), and the intelligent spend group (SAP Ariba, SAP Concur, and SAP Fieldglass).

        “It’s clear our experience-management vision is resonating with our customers and prospects, and driving enhanced interest in our other solutions,” Morgan added. “Companies understand that if they are not competing on experience, they’re on a race to the bottom. Qualtrics continues to successfully drive a ‘land-and-expand’ strategy and has expanded to over 11,450 customers.”

        4. Echoing the Word on the Street

          As expected, there were mixed reviews about the earnings call. According to Den Howlett of diginomica, “some analysts will be jittery that projected cloud growth is not quite what the company has signaled in the past. I am less concerned. If anything, the tacit acknowledgment that many of its customers are not yet ready to commit to a cloud transition for core ERP reflects well on the company's focus on listening to what customers are saying.”

          Some close SAP watchers were less sanguine. Jarret Pazahanick, SAP SuccessFactors Employee Central and SAP Payroll consultant (@SAP_Jarret) tweeted: “I like the repeated ‘customer first’ talk, but on the ground, I am not seeing that. If anything, customers are more unhappy than ever.”

          When asked to elaborate, Pazahanick pointed to major struggles with support and issues with licensing and overall transparency. “While I definitely appreciate the co-CEO’s emphasis on their customer-first initiative, there is a lot of work to be done, and customers are still facing a lot of the same challenges they have been for years.”

          5. New Year, New Decade, New Leadership: Now What?

            Although still fairly new in their positions as co-CEOs, both Morgan and Klein are seasoned SAP advocates and have hit the ground running. They have grand plans for the business but made absolutely clear that the SAP customer drives all of their decisions.

            “We did a bunch of acquisitions in the last decade, and now Jennifer and I, as well as the executive team, will focus on really harmonizing our solution portfolio as well as harmonizing how we engage with our customers,” Klein said. “This is what will help us achieve our 2023 goals.”

            “One of the things Christian and I will always do is be very transparent with where the business is headed,” Morgan added. “Right now, we’re very happy with the portfolio that we have.” The duo will focus on three key objectives in the new year, which include integration, innovation, and sustainability. “Our winning product strategy is to deliver the intelligent enterprise, and it builds upon these three key principles,” Klein added.

            Special note to ASUG members: Be sure to register to listen live (or on demand) to the Feb. 11 webcast with ASUG CEO Geoff Scott and ASUG VP of Content Strategy and Research Ann Marie Gray who will dive deeper into the results from the ASUG Pulse of the SAP Customer 2020 study.

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