SAP Trims 2017 Outlook With Ongoing Cloud Shift

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SAP operating margin down two percent – cloud tumble will now last until 2018

German business software provider SAP has cut its 2017 operating outlook, pinning the blame on its shift to a cloud-based software delivery model that will nip away at its profit margins until a turnaround in 2018.

SAP admitted that its 2017 operating profit will be between £4.8bn and £5.4bn.

Dropped to 33.3 percent

SAP had previously predicted an operating margin of 35 percent on revenues up to £16.9bn, providing an operating profit of about £5.9bn, but that’s now dropped to 33.3 percent.

Last week, SAP beat analyst cloud expectations in preliminary earnings figures. The firm said that earnings from cloud subscriptions have risen 72 percent to about £239m in Q4, beating predictions of £210m.

Cloud software revenue rose 45 percent overall to around £840m during 2014 but cloud sales growth carried on nibbling away at margins.

Chief executive Bill McDermott said: “For the full year 2014, SAP delivered exceptionally strong growth in the cloud and continues to lead in this industry-wide

“In 2014 we continued to deliver on our winning growth strategy. We are the fastest growing enterprise cloud business at scale with the most users in the world.”

Cloud services are typically sold through subscriptions, bringing in revenues over a more extended time period than one-off software licenses, where most of the revenue is paid up-front. SAP is also investing in data centres and is restructuring its sales and support operations around its cloud operations, but believes the cloud will bring in a higher proportion of repeat business over time.

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