SAP rising as its cloud strategy pays off

The firm has upped its outlook twice this year after launching a strategic push to help customers move IT to the cloud.

The German software SAP lifted its outlook for the second time this year as its strategy to help customers move IT operations to the cloud propelled the company in Q2.

Indeed demand is rising so fast that a report from UBS said the lack of the right skills in helping companies move to the cloud could eventually jeopardise the growth of the Big Three cloud companies.

Sid Nag, Gartner’s Deputy said about 40% of companies moving to the cloud turned to specialist firms for help. SAP offers software to run finance, human resources and supply-chains.

Strength to strength

Jefferies analyst Julian Serafini noted the strength in SAP’s subscription-based services and the cloud version of its S/4HANA database.

SAP’s value rose 2.8% as it met the demand from enterprises that are increasingly turning to cloud to support new ways of working, such as from home, due to the pandemic.

SAP says it now expects cloud revenue to grow by 15% to 18% this year, driving its total cloud and software revenue up by 2%to 3%. Even so, the firm’s forecast concerning its operating profit is unchanged – down 4% for 2021 as a whole.

CEO Christian Klein said, “We’re seeing strong adoption of our cloud portfolio as customers select SAP for their business transformation. Our strategy is working”.

Subscriptions beat up-front fees

Last October Klein hitched the company’s fortunes to cloud services’ subscription model, that pays revenue regular recurring revenue in preference to its former model of software licences with heavy up-front fees.

Rise with SAP is a complete digital transformation package, launched the start of this year. Its success a helped drive 20% growth in the current cloud backlog, which is also an encouraging measure of a healthy pipeline.

The S/4HANA cloud backlog was up 48%, confirming progress on Rise with SAP. The company said it was seeing momentum, particularly in the US, where it predicted an acceleration in cloud revenue growth in the second half.

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