Tech

SAP just saw $35 billion wiped off its market cap and it's on track for its worst trading day in 12 years

Key Points
  • SAP saw its valuation fall by 29.48 billion euros (nearly $35 billion) on Monday as shares cratered.
  • The share collapse came after the company posted disappointing third-quarter results.
  • JPMorgan cut its price target for SAP to 120 from 160 euros, and downgraded the stock to neutral from overweight.
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LONDON — German enterprise software group SAP saw its market valuation fall by 29.48 billion euros (nearly $35 billion) on Monday as shares collapsed by over 20% following disappointing third-quarter results.

The company, which slashed its revenue and profit forecast for 2020, saw its market cap fall from 147 billion euros to 118 billion euros and its worst trading day in at least 12 years.

SAP said coronavirus lockdowns would affect demand for its business relations and customer management software well into 2021. It also announced plans to go all-in on cloud computing, competing with the likes of Oracle and Salesforce.

While customers pay considerable sums upfront for SAP's on-premise software packages, most of the payments for cloud subscriptions come down the line, SAP said. As a result, the company is abandoning medium-term profitability targets and warned that it will take longer than expected to recover from the pandemic.

"As the CEO of SAP, I have to be focused on the long-term value creation of this company," Chief Executive Christian Klein told CNBC's "Squawk Box Europe" on Monday.

"So I cannot trade the success of our customers and the significant revenue potential of SAP against short-term margin optimization."

SAP now expects to almost triple its cloud revenues to over 22 billion euros by 2025, Klein said.

However, the switch to focus on cloud computing will bring the company's 2023 operating margin down by approximately 4 to 5 percentage points.

"We will stay committed to our profitable growth with over 11.5 billion euros of operating profit in 2025, which includes a double digit profit growth from 2023 onwards," said Klein.

JPMorgan cut its price target for SAP to 120 from 160 euros, and downgraded the stock to neutral from overweight.

Correction: An earlier version misstated SAP's market value before Monday's trading.