By Mauro Orru
SAP SE said Wednesday that operating profit and revenue fell in the second quarter, but the German software company raised its targets for the year as it banks on cloud revenue growth as part of its strategy to focus on a more predictable source of income than software-licenses.
Reporting on a non-IFRS basis, SAP said operating profit for the quarter slipped to 1.92 billion euros ($2.26 billion) from EUR1.96 billion for the second quarter of 2020, with its operating margin falling to 28.8% from 29.1%.
However, net profit increased to EUR2.06 billion from EUR1.38 billion last year.
Total revenue fell to EUR6.67 billion from EUR6.74 billion, with cloud revenue up to EUR2.28 billion from EUR2.04 billion but software-licenses revenue down to EUR650 million from EUR773 million.
Concur, SAP's expense-accounting and travel-booking platform, began stabilizing as the crippling effects of the coronavirus pandemic on travel, especially in Europe and North America, subside.
SAP is pivoting away from software-licenses sales, once its biggest revenue stream, to subscription-based cloud services, targeting a more profitable and predictable business model based on recurring revenue.
The company is seeking a share of more predictable revenue of about 75% in 2021, up from 72% last year. In the second quarter, the share stood at 76%, a 3% increase from the second quarter last year.
"This has been another strong quarter with accelerating growth for SAP's cloud portfolio. We saw excellent customer momentum and adoption and are raising our outlook for revenue and profit," SAP Chief Financial Officer Luka Mucic said.
SAP now expects non-IFRS operating profit at constant currencies between EUR7.95 billion and EUR8.25 billion. It previously guided for operating profit between EUR7.8 billion and EUR8.2 billion.
Non-IFRS cloud revenue at constant currencies should come in between EUR9.3 billion and EUR9.5 billion. SAP previously expected cloud revenue between EUR9.2 billion and EUR9.5 billion.
Chief Executive Christian Klein, who became sole chief executive of the business software group in April last year, said SAP is seeing strong adoption of its cloud portfolio after the January launch of Rise With SAP, a service for businesses to migrate their IT systems to the cloud.
SAP closed deals with more than 250 customers in the second quarter, including Etihad Airways and Siemens Energy AG, and the company had factored in a decline in software-licenses revenue as more customers transition to the subscription offering.
"We're seeing strong adoption of our cloud portfolio as customers select SAP for their business transformation. Our strategy is working," Mr. Klein said.
Write to Mauro Orru at email@example.com; @MauroOrru94
(END) Dow Jones Newswires