SAP’s Q1 results were mixed, but the stock still looks like a buy

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SAP, a market leader in enterprise application software and also one of the largest analytics and business intelligence companies, released a mixed set of results for the first quarter of 2022, although cloud business very important company continues to show robust growth.

SAP’s cloud revenue for the first quarter grew about 25% year-over-year in constant currency terms to about 2.82 billion euros (about $3 billion), rates growth also increasing slightly from the fourth quarter of 2021. SAP also says its current cloud backlog was at 9.73 billion euros ($10.5 billion), up 23% year over year. another in constant currency. For the full year, SAP expects cloud sales to grow 23% to 26% at constant exchange rates. Overall sales growth was also robust, with total revenue for the quarter growing approximately 11% year-on-year (7% in constant currency) to €7.08 billion (€7.6 billion). dollars), exceeding estimates. This represents an increase from the growth rates of approximately 3% that SAP recorded last year. We believe the overall pick-up in revenue growth is encouraging, as the transition to the cloud typically results in a lower growth rate as initial software license sales are replaced by subscription revenue and it is possible that SAP can go beyond these transitory problems. However, adjusted earnings per share fell short of estimates, falling around 28% to €1 due to higher R&D and marketing spending, costs related to the Russian business and lower financial income compared to last year from the company’s investments in a venture capital company. Sapphire

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Companies. The company also guided for an impact of around 350 million euros on its 2022 adjusted profit, as it now plans to exit the Russian market entirely, following the invasion of Ukraine.

That being said, we think SAP stock is pretty good value at the current market price of around $105 per share. SAP’s move to the cloud is expected to give the company a greater range of recurring sales, with the company now classifying around 81% of its sales as highly predictable. Additionally, SAP is also betting that the transition should help it increase its share of wallet with customers, as the cloud-based model effectively bundles software with back-end IT infrastructure and operational services, which businesses generally had to keep up with the on-premise models. Additionally, as the cloud transition continues, investors may value SAP more as a cloud software company. For perspective, SAP is trading at around 19x 2022 consensus earnings, compared to cloud-only players such as Salesforce and ServiceNow stocks, which are trading at around 40x.

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and 65x forward earnings, respectively.

We value SAP at around $147 per share, which is about a 40% upside from the current market price. See our analysis of SAP Valuation: Is SAP stock expensive or cheap? for more details. For more information on SAP’s business model, major sources of revenue, and how its revenue has evolved, see our analysis on SAP Revenue: How Does SAP Make Money.

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