Market News

SAP Raises Royalty Fees as Part of Revamp Plan – Report

SAP AG (SAP) plans to increase the fees it collects from its largest software sales partners. Bloomberg reports that the German software company has started to renegotiate royalty fees as it seeks to squeeze more revenue from its partnerships. SAP shares fell 0.76% to close at $107.68 on March 11.

SAP is a German company that offers software and software-related services. It operates through the Applications, Technology & Support, Concur Qualtrics, and Services segments.

Revamp Plan

In the past, SAP relied on a tiered structure to determine the percentage of revenue a partner could pay as royalties. Some vendors paid as much as 35%, while others paid as little as 15%. In addition, the company charged a 15% fee to list partners on its online marketplace.

The bid to increase royalty fees is part of a broader revamp plan that seeks to make it easier for software vendors to access SAP’s expansive line of tools. The company is looking to take advantage of strong sales momentum for its signature products. It also plans to eliminate the 15% fee for the vast majority of its partners to access its online marketplace.

The negotiations come when SAP needs to hold on to key partners as it transitions customers from on-premises tools to cloud-based software. The efforts appear to be paying off, with a 28% increase in cloud revenue to $2.9 billion in the fourth quarter.

Stock Rating

In January, Cowen & Co. analyst Derrick Wood reiterated a Hold rating on the stock and reduced the price target to $136 from $145, implying 26.30% upside potential to current levels.

Consensus among analysts is a Moderate Buy based on 3 Buys and 3 Holds. The average SAP price target of $152.75 implies 41.86% upside potential to current levels.

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