SAP Slashes 2020 Guidance As Covid-19 Surge Slows Recovery

SAP revised its 2020 guidance downwards as the German software maker expects the demand recovery to be more muted than forecast due to the recent re-emergence of pandemic-led lockdowns by some governments.

SAP (SAP) also withdrew its forecast for a “meaningful” recovery in its SAP Concur business travel-related revenues for the remainder of the year 2020. For 2020, the software maker now expects non-IFRS total revenue at 27.2 billion euros to 27.8 billion euros ($32.24-$32.95 billion), at constant currency, down from a previous range of 27.8-28.5 billion euros.

Non-IFRS operating profit, also at constant currency, is now forecast at between 8.1 and 8.5 billion euros. The earlier range had been 8.1-8.7 billion euros.

“The COVID-19 pandemic which is expected to impact the demand environment, particularly in hard hit industries, through at least the first half of 2021 pushing out the achievement of key metrics such as non-IFRS cloud revenue, total revenue, and operating profit, by 1 to 2 years,” SAP said in a statement.

SAP also announced that it is shifting its strategy to boost its transition into cloud computing and is targeting cloud revenues of more than 22 billion euros in 2025. Overall, 2025 non-IFRS total revenue is forecast at 36 billion euros.

In addition, the software maker released third-quarter results. Non-IFRS total revenue, at constant currency, was flat at 6.54 billion euros year-on-year. Non-IFRS cloud revenue rose 14%, at constant currency, to 1.98 billion euros during the reported period. Non-IFRS software licenses revenue, at constant currency, was down 19% year-on-year. Earnings per share increased 31% to 1.70 euros during the same comparative period.

The software maker’s shares have been on a gaining path since dropping to a low in March and are now trading 12% higher than at the start of the year. (See SAP stock analysis on TipRanks)

CFRA analyst Tan Jun Zhang last month reiterated a Buy rating on the stock with a $176 price target (18% upside potential), saying that the company’s strategy shift from a licensing model to a cloud model, should help it generate 80% recurring revenue by 2023.

The analyst expects SAP to achieve 87% earnings per share growth this year, despite the pandemic-related headwinds.

The rest of the Street has a cautiously optimistic outlook on the stock. The Moderate Buy analyst consensus is split between 2 Buy ratings and 2 Hold ratings. The $170 average price target implies shares have room to advance another 14% over the coming year.

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