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SAP Foresees Q4 Beat and Provides FY2022 Guidance; Shares Leap 3%

SAP (NYSE: SAP) shares jumped 3% during the extended trading session on January 13, after the multinational software company announced impressive preliminary financial results for the fourth quarter and full-year ended December 31, 2021.

The upside was driven by robust momentum, exceptionally strong demand for “RISE with SAP” across customers of all sizes, accelerated cloud revenue growth, and strong traction of SAP S/4HANA Cloud.

Expected Q4 Outperformance

Q4 adjusted earnings of €1.86 per share are expected to grow 10% year-over-year. Furthermore, revenues are expected to jump 6% year-over-year to €7.98 billion.

The increase in revenues reflect a rapid acceleration of the current cloud backlog that grew 32% to €9.45 billion and SAP S/4HANA’s current cloud backlog growth of 84% to €1.71 billion.

Segment-wise, Cloud revenue surged 28% to €2.61 billion, while SAP S/4HANA cloud revenue grew 65% to €329 million, and Cloud and software revenue grew 6% to €6.99 billion.

However, Software licenses revenue declined 14% year-over-year to €1.46 billion.

Robust FY2022 Outlook

Based on strong Q4 results, expected continued positive momentum and continued cloud revenue growth throughout 2022, management issued the financial guidance for FY2022.

The company forecasts non-International Financial Reporting Standards (IFRS) operating profit to be in the range of €7.8 billion to €8.25 billion, flat to down 5% at constant currencies.

The company expects non-IFRS cloud revenue to grow between 23% and 26% to €11.55 billion to €11.85 billion, while non-IFRS cloud and software revenue is forecast to grow 4% to 6% to €25 billion to €25.5 billion.

For the full-year 2022, the share of more predictable revenue, which includes the total cloud revenue and software support revenue, is expected to reach approximately 78% compared to 75% in 2021.

New Share Buybacks worth €1 billion

Concurrent with the preliminary results, SAP announced a new share repurchase program of approximately €1 billion to be executed between February 01 and December 31, 2022.

Earlier, SAP had repurchased around 14 million shares for about €1.5 billion in 2020.

Management Weighs In 

Ahead of the upcoming earnings on January 27, SAP CEO, Christian Klein, commented, “The magnitude of our cloud strength is evident. More and more companies are choosing SAP to help them transform their businesses, build resilient supply chains and become sustainable enterprises as they move to the cloud.”

He further added, “This momentum is reflected in the tremendous success of “RISE with SAP,” our signature cloud offering, as well as excellent growth across our entire portfolio. Our growth acceleration points to even greater potential ahead.”

Analysts Recommendation

The Wall Street community is cautiously optimistic about the stock, with a Moderate Buy consensus rating based on 2 Buys. The average SAP stock price projection of $155 implies 14.1% upside potential to current levels.

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