In a market landscape fraught with uncertainty, SAP SE continues to defy the odds, witnessing a remarkable surge of 64.7% in the past year. This meteoric rise outpaces the growth of the S&P 500 Composite and the sub-industry by a significant margin, with figures standing at 27.5% and 58.9%, respectively.
SAP, a behemoth in the realm of independent software vendors, stands tall as the premier provider of enterprise resource planning (ERP) software. The company prides itself on an extensive partner ecosystem, boasting over 20,000 partners globally across 140 countries.
Fueling SAP’s stellar performance is the unwavering strength of its cloud business, notably exemplified by the success of its Rise with SAP and Grow with SAP solutions.
A Beacon of Growth
SAP’s strategic focus on expanding its cloud business has positioned it as a frontrunner in this burgeoning sector. The surge in current cloud backlog, a pivotal metric in the cloud business, reflects an impressive 25% increase (27% at cc) to €13.75 billion in the latest quarter.
The introduction of the groundbreaking Rise with SAP solution has been a game-changer for SAP, enabling businesses to metamorphose their processes into agile, digital, and intelligent operations. This revolutionary offering continues to gain widespread popularity, bolstering SAP’s market dominance in cloud ERP solutions.
Embracing SAP’s business technology platform, particularly the S/4HANA solutions, is proving to be a wise move for many enterprises. The uptick in the adoption of S/4HANA solutions, both partially and wholly in the cloud, underscores the increasing appeal of SAP’s offerings. Notably, SAP S/4HANA cloud revenues catapulted by 55% (61% at cc) year over year to €1.03 billion in the fourth quarter of 2023. The S/4HANA cloud backlog surged by 58% (61% at cc) year over year, underscoring the growing demand for SAP’s premier solution.
SAP’s incessant stream of product launches, exemplified by Grow with SAP and SAP Datasphere, in concert with strategic acquisitions and collaborations, augur well for its cloud business.
Anticipating the windfall of the generative AI trend, SAP is poised to harness this wave to propel its revenues forward. With a keen eye on vital strategic growth areas, notably Business AI, the company sets the stage for future expansion. A comprehensive restructuring program slated for 2024, involving the elimination of 8,000 positions across its operations, aims to align SAP’s capabilities with the demands of tomorrow’s business landscape.
Turbulence Ahead?
While the sails of SAP are billowing with success, storm clouds loom on the horizon. The softness in the Software license and support business segment, coupled with global macroeconomic fragility, present significant challenges. Moreover, rising costs and intensifying competition add further complexity to the company’s trajectory.
Seeking Greener Pastures
For investors eyeing potential gems in the technology realm, Manhattan Associates, Watts Water Technologies, and Microsoft present compelling options. While Manhattan Associates boasts a Zacks Rank #1 (Strong Buy), Watts Water and Microsoft each carry a Zacks Rank of 2 at present. The future looks promising for these innovative entities.
As the financial landscape continues to evolve rapidly, one cannot ignore the remarkable journey of SAP in the midst of uncertainty. Time will tell if this upward trajectory is sustainable or if SAP must navigate choppy waters ahead.
