While its CEO change is getting more attention, the solid Q3 numbers that SAP (SAP) just reported also shouldn't be ignored.
On Thursday evening, the German enterprise software giant announced that Bill McDermott, who was named SAP's co-CEO in 2010 and has been its sole CEO since 2014, is stepping down immediately and will leave the company altogether at year's end. A pair of co-CEOs will replace McDermott: Christian Klein, who has been serving as COO, and Jennifer Morgan, who as president of SAP's Cloud Business Group has been in charge of several cloud app businesses.
SAP also announced adjusted (non-IFRS) Q3 revenue of €6.81 billion ($7.52 billion) and EPS of €1.30 ($1.43), topping consensus analyst estimates of €6.68 billion ($7.37 billion) and €1.19 ($1.31). Full-year revenue and operating profit guidance was reiterated, as were SAP's 2020 and 2023 top and bottom-line targets.
Shares are up 10.1% to $126.90 as of the time of this article, and have recovered a large chunk of the July losses they saw after SAP slightly missed Q2 estimates and reported "trade-related uncertainty" was weighing some on its Asian software sales. Activist Elliott Management, which disclosed an SAP stake in April (and may have had some say regarding its leadership change), has to be smiling.
Though news of the CEO change might be contributing to SAP's Friday gains (at a minimum, Wall Street isn't distraught over it), the company's Q3 performance is also clearly playing a role. Whereas SAP's revenue rose 11% annually in euros and 8% in constant currency (CC) in Q2, it grew 13% in euros and 10% in CC in Q3. Those are solid numbers even after accounting for the moderate top-line boost provided by the $8 billion purchase of online survey/customer experience software firm Qualtrics, which closed in January.
SAP also reported that its total cloud revenue (boosted some by Qualtrics) rose 37% in euros and 33% in CC to €1.81 billion ($2 billion), And with the qualifier that a deal with "a major partner" boosted growth by 17 percentage points, SAP's cloud bookings rose 38% in euros and 33% in CC, after having respectively grown 17% and 15% in Q2. Euro-based bookings growth was 50% if one excludes cloud infrastructure (IaaS) -- SAP has (wisely, I think) chosen to de-emphasize its own IaaS business in favor of teaming with public cloud giants such as Amazon.com (AMZN) , Microsoft (MSFT) and Alphabet/Google (GOOGL) to offer its software for use on their infrastructures.
SAP's top-line figures easily look better than the ones that archrival Oracle shared last month. Then, Larry Ellison's firm reported that its August quarter revenue grew 1% annually in dollars and 2% in CC, and guided for its November quarter revenue to be flat to up 2% in dollars and up 1% to 3% in CC.
Oracle's cloud revenue growth also appears to have been lower than SAP's. One can only say "appears" here, since Oracle stopped breaking out its cloud revenue last year. Instead, Oracle now groups its cloud license sales (driven by databases) with its traditional, on-premise, software license revenue, and groups its cloud app subscription (SaaS), cloud infrastructure and cloud developer platform (PaaS) revenue with its traditional license support revenue.
Needless to say, this level of transparency is far from ideal for investors, particularly given how much Oracle is banking on its SaaS and cloud license businesses to drive future growth. And while SAP's transparency isn't perfect either -- ideally, the company would break out its SaaS revenue from other cloud revenue streams -- it's easily better.
Markets have granted SAP a valuation premium relative to Oracle. Whereas Oracle currently trades for 15 times a fiscal 2020 (ends in May 2020) EPS consensus of $3.87, SAP trades for 21 times a 2020 EPS consensus of $5.99. However, a quick look at each company's top-line numbers -- and what is and isn't shared in them -- makes it clear that a valuation premium of some kind is justified.