Upside to SAP if It Holds Market Share

Nov.18.10 | About: SAP AG (SAP)

SAP’s (NYSE:SAP) market share in enterprise resource planning (ERP) has declined from around 29% in 2005 to around 26% in 2010 by our estimates [1] due to competition from players like Infor, Sage and Oracle’s Applications unit (NASDAQ:ORCL) and IBM (NYSE:IBM). Companies use ERP solutions for integrating an organization’s data and processing it into a single system.

ERP software accounts for around 38% of our price estimate for SAP so any decline in its ERP market share impacts SAP’s stock price. While we currently expect a gradual decline in market share through 2016, SAP could add around 5% to its share price if it maintains its current market share.

We have a Trefis price estimate of $53.29 for SAP’s stock, which is about 8% above the current market price.

Competition Could Erode Share

Infor acquired Qurius’s ERP LN operations in July 2010 to help its expansion in the European market. [2] Sage’s presence in the healthcare, payment processing and online banking (a sector with increasing needs for such solutions) verticals is also challenging SAP.

According to Gartner, SAP’s market share steadily declined from 2005 to 2009 due in part to Oracle’s acquisition of PeopleSoft in 2005, which lifted its market share in ERP making it second to SAP. Oracle has a strong presence in Europe, SAP’s home market, and has been pushing into the financial services domain and increasing its focus on human resources management (HRM) software, which includes payroll processing, recruiting process, employee services, etc.

While we currently forecast modest declines in market share, we note that SAP has maintained market share close to 26% since 2008, and if it can maintain this, this would add around 5% to our price estimates.

You can drag the forecast trend-line above to express your own view, and see the sensitivity of SAP’s stock to SAP Market Share in Resource Planning Software.

Notes:

  1. Estimates based on historical reports by Gartner
  2. Company press release

Disclosure: No positions