By Christopher Alessi
FRANKFURT--German business software provider SAP SE said Tuesday
that first-quarter net profit fell 23%, further illustrating how
the company's transition to Internet-based software products in the
cloud is squeezing short- to mid-term profitability.
Net profit for the period ended March 31 was EUR414 million
($444.17 million) compared with EUR534 million during the same
period last year.
The company also gave a net profit figure of EUR697 million
based on calculations that aren't recognized under international
financial reporting standards. That was an increase of 5% from a
year earlier and fell short of analysts' expectations of EUR755
million, based on a poll by The Wall Street Journal.
Revenue climbed by 22% to EUR4.5 billion, helped by increased
customer adoption of the company's cloud offerings. Revenue based
on cloud subscriptions and support jumped by more than 100% to
EUR503 million, the company said.
SAP benefited from a weaker euro in the first quarter but the
effect was "dampened by acquisition-related charges," Chief
Financial Officer Luka Mucic told reporters.
Chief Executive Bill McDermott--an American who was appointed
sole CEO last year--has sought to move SAP away from its
traditional on-premise software products, betting that the
company's long-term growth will be in the cloud. As part of that
effort, Mr. McDermott has presided over a series of cloud-focused
acquisitions, including last year's $8.3 billion purchase of
U.S.-based expense management software provider, Concur
Technologies Inc.
In February, the company launched a redesign of its core
Business Suite software, S/4HANA, which operates on its flagship
HANA real-time database and can run both in the cloud or on
hardware. The company said it so far has more than 370 S/4HANA
users.
However, the company's move to the cloud has crimped
profitability because revenue is increasingly spread out over
longer contract periods and based less on one-off licensing fees.
In January, the company dropped a 35% profit margin target for 2017
and hasn't provided a new figure.
Mr. McDermott said on Tuesday that margin rates would ultimately
rebound. "As those investments [in the cloud] start to streamline,
the margin flows through," he said.
SAP reiterated its guidance for 2015, saying it expects a
non-IFRS operating profit of between EUR5.6 billion and EUR5.9
billion. It expects full-year non-IFRS revenue for cloud
subscriptions and support to be between EUR1.95 billion and EUR2.05
billion.
Write to Christopher Alessi at christopher.alessi@wsj.com
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