SAP to lay off 3,000 and sell Qualtrics stake as profits plunge
SAP SE said it will lay off 3,000 people, or about 2.5% of its global workforce, following a steep fall in profits in the fourth quarter of 2022. The company expects to incur restructuring costs of between $272 million and $327 million in the first quarter of 2023 as a result but said the moves will yield savings of about $382 million in 2024.
SAP also said it is looking to sell its 84% stake in survey software specialist Qualtrics International Inc., which it acquired for $8 billion in 2019 and took public in 2021. Qualtrics’ share price has suffered along with those of many technology firms recently. It’s down 40% from a year ago and 67% below its peak shortly after the IPO. The company’s market capitalization was $8.5 billion this morning after jumping nearly 30% following SAP’s announcement.
Fourth-quarter revenue of $9.28 billion was slightly below analysts’ estimates of $9.32 billion. Cloud revenue grew 22% in constant currency terms to $3.7 billion. Software license sales continue to plunge, falling 39% in constant currency terms to $989 million. SAP has been on an aggressive campaign to shift its customers away from on-premises licensing to its S/4HANA cloud-based enterprise resource planning suite, which grew 79% in the quarter.
Net profit fell 46% to $1.12 billion in the quarter. SAP blamed the shortfall on a combination of its withdrawal from Ukraine in the wake of Russia’s invasion last year and a “significantly lower“ contribution from its Sapphire Ventures investment operations amid a market-wide decline in venture funding. The company said the wind-down of its Ukraine business reduced operating profit by $76 million in the quarter.
In a conference call with analysts, executives chose to focus more on full-year results than the most recent quarter. They said the company had met all the financial guidance for the year and promised to deliver double-digit percentage growth in operating profits in 2023.
In particular, they pointed to the success of its Rise with SAP digital transformation program that focuses on shifting customers into SAP cloud infrastructure. “It is one of our most successful offerings ever,” said CEO Christian Klein (pictured). “It is much more than a technical lift-and-shift to the cloud. It is a true business transformation offering and around 50% of customers are net new customers to SAP.”
Klein also said the “flywheel effect” of the program tends to prompt add-on sales of other products in the SAP portfolio, including software for managing human resources, travel expenses and customer experience. “More than 30% of customers use two or more SAP solutions and we see this flywheel effect accelerating,” he said.
Cloud sales and backlogs grow
For the full year, cloud revenue grew 24% at constant currency rates with the current cloud backlog standing at more than $13 billion, also up 24%. Cloud gross profit was up 28%. Operating profit of $8.75 billion was down 7% for the year.
SAP expects full-year 2023 cloud revenue of between $16.7 and $17.1 billion, which would represent growth of 22% to 25% at constant currencies. Anticipated cloud and software revenue of $30.7 to $31.3 billion would be up between 6% to 8% at constant currencies while forecasted profit of $9.6 to $9.9 billion would show an increase of 10% to 13%.
The share of more predictable revenue, which is total cloud and software support revenue divided by total revenue, is expected to reach 83% this year compared to 79% in 2022 and 75% last year. That’s considered an important indicator of the stability of the business.
“We are providing strong guidance for 2023 despite the current macroeconomic pressures,” said Chief Financial Officer Luca Mucic, who is leaving the company after 26 years. He promised a return to double-digit operating profit growth as well as accelerated cloud and total revenue growth.
Executives said they were heartened by strong demand across all geographic regions in the fourth quarter as well as growing average contract duration terms which now exceed four years on average. The $13 billion cloud backlog also gives the company a degree of protection against economic fluctuations. “I would expect a gentle reacceleration in Q1 because of the backlogs,” Mucic said.
Photo: SAP YouTube
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