SAP Q1: COVID-19 Guts License Sales but Cloud Revenue Jumps 29%

Offering a first glimpse at the jarring impact COVID-19 will surely have on Q1 financial results, SAP said its license sales will probably decline 31% for the quarter. However, cloud revenue should rise by 29%.

In a narrative that will become very familiar over the next few weeks as many of the Cloud Wars Top 10 vendors release Q1 earnings results, SAP said business was very solid through January and February but was rocked in March as awareness of the global pandemic became widespread. 

“Business activity in the first two months of the quarter was healthy. As the impact of the COVID-19 crisis rapidly intensified towards the end of the quarter, a significant amount of new business was postponed,” SAP said in a press release.

“This is reflected, in particular, in the significant year-over-year decrease in software licenses revenue.” 

SAP, which is #5 on the Cloud Wars Top 10, said it has initiated a range of of cost-control measures including a slowdown in hiring and discretionary spending. 

To help sustain new revenue as the world is in lockdown, SAP said it has shifted to a “virtual sales and remote implementation strategy.”

A few details for the quarter:

• cloud revenue rose 29% to $2.2 billion;
• license revenue tumbled 31% to $491 million;
• cloud and software revenue (which includes maintenance/support fees) were up 7% to $5.89 billion; and
• total revenue was up 7% to $7.1 billion.

For the year, the impact of COVID-19 led SAP to revise its guidance downward in a number of areas. “The revised outlook assumes the current COVID-19-induced challenging demand environment deteriorates through the second quarter before gradually improving in the third and fourth quarter as economies reopen and population lockdowns end.”

The 2020 outlook includes these revisions:

• cloud revenue, which had been projected to come in between $9.5 billion and $9.8 billion, is now expected to be in the range of $9.05 billion and $9.48 billion, with those revised figures representing an increase for the year of 18% to 24%; and
• total revenue for the year, which had been expected to be between $31.8 billion and $32.4 billion, is now projected to come in between $30.3 billion and $31.1 billion.

Co-CEOs Christian Klein and Jennifer Morgan offered this broad perspective of the current situation in the press release: “As the world navigates the COVID-19 pandemic, SAP has remained focused on our employees, customers, and communities. To support them, we made our vast business networks and technology available for companies to find new sources of supply and manage demand, understand and act on sentiment across value chains that went virtual overnight, and support learning efforts at scale. Our customers will continue to rely on us to listen and engage with their employees in new ways, manage their supply chains, and connect with their customers in a virtual world where sentiment will become a leading indicator.”

SAP made the sobering disclosures in a preliminary release of its financials, and will disclose formal results on April 21.