They do not like surprises, positive or negative, in financial markets. Investors and investors, especially those with a long-term perspective, tend to prefer reliability and predictability. However, Europe’s largest software company, SAP, which is also Germany’s most valuable stock exchange with a value of less than 140 billion euros, cannot serve this purpose.
On Wednesday night, for example, SAP President Christian Klein, 40, surprisingly announced new numbers. They have turned out better than expected, despite the ongoing global Corona pandemic. “We are seeing very strong growth in all of our applications and we are only at the beginning,” he says, thus setting expectations. For the entire year 2021 and beyond. “The first quarter of 2021 was unique in many ways,” added CFO Luca Mucic. In the case of requests for cloud business and software licenses, SAP recorded the highest growth in five years, and the score and operating margin rose as steeply as had not happened in ten years. The share then increased dramatically, meanwhile, by about five percent.
Last year she looked very different. Klein, who started at SAP as a student in 1999 and has served as CEO since the end of 2019, had to cut expectations twice in 2020. In October 2020, he coolly attracted investors, because they hadn’t expected it at all. At that time, the share had fallen by 20 per cent in one fell swoop, and the market value had decreased by nearly € 30 billion in a very short time. Since then, it has gradually increased again, but the share is still far from its heights.
Bad for SAP: There’s less travel
The pandemic is also putting pressure on SAP, particularly global travel restrictions. Because the company from Walldorf in Baden-Württemberg offers Concur, a travel accounting software, which is now rarely used. On the other hand, SAP benefits greatly from the trend towards digitization, with more and more business processes being implemented with software. Companies are increasingly using the cloud, and data and software come online, so to speak, “from the cloud” rather than on their computers. This helps, for example, the SAP-listed subsidiary Qualtrics, as well as competitors like Salesforce from San Francisco.
Klein wants to turn SAP into a pure cloud provider and offers nearly 400,000 corporate customers around the world a new end-to-end business transformation program called “SAP Rise”. With this, he wants to attract more customers to the cloud and move them to switch from previously offered licensed products to rental applications in the network that bring in more income. SAP has now spoken of a “strong start” for this offer.
In the past year, the traditional licensed business had already decreased significantly. SAP has just announced that its critical financial services business will fade away. In the future, they will collaborate with Munich-based investment company Dediq. According to its own information, SAP already has more than 1000 banks and more than 500 insurance customers, but it generates the majority of its sales through widely applicable software solutions. The new collaboration is now to develop applications for the specific needs of the banking and insurance industry.
The ongoing changes to the SAP Board of Directors have recently caused unrest. American Bill McDermott abruptly announced his resignation in October 2019, with equal management duo appointed by Klein and Jennifer Morgan as his successor. But the American left after only a few months, and since then Klein has been running the company on his own. At the start of the year, Adair left Fox Martin, and has been on the board of directors since 2017. Klein said Saab, with its strategy, is “on the right track.” He will have to prove in the next few months whether this is really the case. Then confidence returns, too.