SAP, gaining market share, raises outlook

  • Cloud growth outstrips rivals, chief executive says
  • Guidance raised after Callidus acquisition
  • CFO says Margin recovery firmly on track

Germany's SAP announced upbeat results in the seasonally tough first quarter, saying it was gaining ground on its main competitors Salesforce and Oracle in them cloud and that its margin recovery was firmly on track.

SAP, Europe's largest tech company by stock market valuation, also raised its sales and profits guidance for 2018 to take into account the $2.4 billion acquisition of U.S. sales software firm Callidus that was announced in January.

"We're gaining share fast and we're outpacing our toughest competitors pretty handily," Chief Executive Bill McDermott told reporters on a conference call, calling the results strong at the top and bottom line.

SAP now expects total non-IFRS revenues at constant currencies this year of 24.8-25.3 billion euros ($30.28-$30.89 billion), representing growth of 5.5-7.5 percent, up from an earlier expectation of 5-7 percent growth.

Non-IFRS operating profits rose 14 percent in constant currency to 1.235 billion euros, compared to the average forecast of 1.19 billion euros in a Reuters poll of 15 analysts.

Cloud subscription and support revenues, SAP's growth driver, grew by 18 percent to exceed 1 billion euros for the first time. At constant currencies they rose 31 percent, to which McDermott said: "Wow."

Bill McDermott is the chief executive officer of SAP AG.
Martin Leissl | Bloomberg | Getty Images
Bill McDermott is the chief executive officer of SAP AG.

A 'very, very good day'

Cloud growth accelerated outside the United States and grew faster than any of SAP's major rivals, including Oracle, Salesforce and Workday, he added.

Speaking to CNBC after the latest earnings, McDermott said shareholders should be happy with the results.

"The big thing was that the shareholders wanted was margin expansion," McDermott told CNBC's Squawk Box Europe on Tuesday. "And today we have, as promised, delivered that."

He went on to describe the company's need to continue driving margin performance in the private cloud environment, with the help of SAP solutions and an "open ecosystem."

"That has now hit scale, and that too has turned profitable," he said.

SAP has faced currency headwinds due to the strong euro, and both the company and analysts focus on key metrics after adjustment for currency effects to get an underlying picture of performance.

"As much as we've grown, we actually lost six points, seven points in some cases, of growth just to currency," McDermott told CNBC.

"So when you add the currency effect to our actual results in U.S. dollar terms, it's a total rout of SAP in a market share sense against any of our competitors. So our shareholders should be feeling very, very good today."

"We grew faster than every 'best-of-breed' cloud (competitor) out there," McDermott said. "Faster than Workday, a lot faster than Salesforce, and a lot faster than Oracle."

Had SAP reported in U.S. dollars, like its competitors, the growth numbers would have turned out even better, said Chief Financial Officer Luca Mucic. Cloud subscriptions, for example, would have shown year-over-year growth in the first quarter of 37 percent in U.S. dollar terms, he said.

Mucic said that an expansion of 1.1 percentage points in operating margins in the first quarter boded well for SAP after a strong showing in the same quarter a year ago.