German software maker SAP AG (SAP) announced plans on Sunday to take its Qualtrics unit public through an initial public offering (IPO) in the US.
Following the IPO, SAP intends to remain the majority owner of Qualtrics, which is part of its cloud portfolio. The main objective behind the IPO is to strengthen Qualtrics’ ability to capture its full market potential within the experience management industry. The move will help Qualtrics to expand its footprint both within SAP’s customer base and beyond, the company said.
“SAP’s acquisition of Qualtrics has been a great success and has outperformed our expectations with 2019 cloud growth in excess of 40%, demonstrating very strong performance in the current setup,” SAP CEO Christian Klein said. “SAP will remain Qualtrics’ largest and most important go-to-market and research and development (R&D) partner while giving Qualtrics greater independence to broaden its base by partnering and building out the entire experience management ecosystem.”
SAP added that it has no intention of spinning off or divesting its 100% majority ownership. The IPO plan is not expected to have an impact on SAP’s 2020 or longer-term financial targets, the company said. SAP bought Qualtrics back in 2018 for $8 billion.
The software maker’s shares have been on a gaining path since dropping to a low in March and are now trading 18% higher than at the start of the year.
Wall Street analysts have a cautiously optimistic outlook on the stock as 5 out of 7 analysts covering the company in the past three months have Buys and 2 have Holds adding up to a Moderate Buy consensus. In light of the recent rally, the $158 average price target implies shares are fully valued. (See SAP stock analysis on TipRanks)
Meanwhile, Argus Research analyst Joseph Bonner on July 10 raised SAP’s price target to $175 (10% upside potential) from $145, saying that the updated price target still implies a forward earnings multiple of 28-times, which is below the peer average multiple of 42-times.
Bonner maintained a Buy rating on the stock after SAP reported better-than-expected preliminary Q2 results and “strong” operating margins.
The analyst pointed to management commentary on the gradual improvement during the quarter, with a “particular strong” recovery in software license revenue in the Asia Pacific region.
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