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SAP: It’s Still All About The Cloud

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SAP shares have slid downward despite strong Q2 results.

The company posted 30% growth in cloud revenues and bookings, even stronger than Q1 earnings numbers (where the stock rallied in response).

The acquisition of Callidus and an announced intention to drive deeper focus in CRM will remain another major cloud growth driver for SAP.

SAP’s business has become much more recurring, with “predictable revenues” hitting 66% of total revenues (up 3 points year over year).

Among technology stocks, the name SAP (SAP) has never exactly been one of the most popular. Stocks like Amazon (AMZN) and Netflix (NFLX) are “hot names” in the internet space (though perhaps not the latter after the most recent earnings report), while Microsoft (MSFT) has dominated the majority of hype for the software space ever since Satya Nadella took the helm and refocused the company away from Windows and onto cloud services.

While we’ll acknowledge that SAP’s push into the cloud has been behind that of Microsoft, the entire group of large-cap software companies have been slower to change. Microsoft spent years building out its cloud services in Office 365 and CRM tools like Microsoft Dynamics and Microsoft PowerBI, while Oracle was a noticeable laggard in transitioning its backend database and frontend applications to a cloud-based consumption model. SAP is not alone in this regard. Yet while Microsoft’s stock continues to soar to new heights, especially after the Redmond giant’s Q4 earnings release last week, SAP has largely traded flat.

While investors in SAP have been impatient for it to get off the ground, I still find the stock to be extremely attractive, both in terms of its relative valuation to peers as well as for exposure to one of the Eurozone’s largest companies. On both an earnings and revenue basis, SAP trades at a substantial discount to Microsoft, which has risen 24% year-to-date while SAP has barely remained above flat:


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Article Credit: Seeking Alpha

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