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SAP Misses Q1 Estimates; Cloud Growth Pressures License Revenue

|Includes: ORCL, SAP AG (SAP)

SAP's (NYSE:SAP) Q1 performance is a reversal from Q4's sales and EPS beat. Providing an excuse previously given by a few hundred other enterprise software firms (give or take), SAP blames deal slippage (in the Americas particularly). Also, with SAP reporting in euros, forex went from being a tailwind in Q4 to a headwind in Q1. Revenue growth was 5% Y/Y as reported and 6% excluding forex. In Q4, the figures were 16% as reported and 11% excluding forex. (earnings release)

Still, there was a growth slowdown even in constant currency. The main culprit: Traditional software license revenue fell 13% Y/Y (as reported) to €610M. Quite the change from Q4's 15% growth, and a sign cloud software adoption is now having a big impact on SAP's license sales - archrival Oracle's (NYSE:ORCL) new license sales fell 15% Y/Y in its February quarter. Cloud subscription/support revenue remained strong, rising 33% to €680M. Cloud bookings rose 22% to €140M - Q1 is a seasonally weak quarter for both traditional licenses and cloud bookings - and software support revenue grew 5% to €2.56B.

On the bright side, 500 more customers were added for the S/4HANA platform (involves running SAP's core ERP apps on its popular Hana in-memory database), bringing the total count above 3,200. And full-year guidance for 6%-8% constant currency cloud/software sales growth is reiterated, as is 2016 operating profit guidance. No need to rush to cut guidance after a bad quarter when there are three left (including seasonally big Q4).

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.