SAP: Cloud Business Expands But Profits Wane After Q1 Report

Like most large scale software vendors, SAP has jumped headfirst into the world of cloud services. A CBS MarketWatch report says that SAP’s profits have dipped nearly 23% after its moving its focus to cloud based products.
SAP has mentioned that it has expected its new line up of cloud related services to eat into corporate profit. The strategy behind SAP’s cloud endeavors is to sacrifice profit in order to gain market share. CBS says that SAP brought in 534M Euros for its previous fiscal year. The most recent results chart SAP as only bringing in 414M Euro.
SAP said that a weaker Euro has actually helped their bottom line, but it didn’t do enough to mitigate the 23% loss in profit. SAP’s 23% drop in profit can be attributed many different reasons, however, SAP points to its mergers and acquisitions as being the top reason.
In 2014, SAP spent $8.3B on cloud based expense giant Concur. In February, SAP released S/4HANA in the cloud which gives businesses access to a real-time database that is built for enterprise functionality. SAP says that over 370 organizations have adopted the S/4HANA platform.
In January, SAP mentioned that they thought their profit margins would drop a few percent by year 2017. Although some financial analysts believe that SAP should provide a new estimate on its revenues, CEO Bill McDermott believes that profits will rebound. McDermott is quoted as saying, “As those investments [in the cloud] start to streamline, the margin flows through.”
SAP has set its targets high for the rest of 2015. SAP says that it expects an operating profit in the range of 5.6B Euro and 5.9B Euro (without IFRS revenue included). For cloud based subscriptions, SAP projects that their non-IFRS revenue will be between 1.95B and 2.05B Euros.