SAP (SAP) is trading at an all-time high after reporting upside first quarter results and raising its profit outlook for this year and long term as it focuses on cutting costs.
SAP is a $151 bln software company that trades with a mid-teens EV/EBITDA multiple -- a modest premium to its American rival Oracle (ORCL).
First quarter adjusted profit grew 24% to EUR 0.90/share. Revenue growth accelerated to 16% (to EUR 6.1 bln euros) thanks to foreign exchange tailwinds and the recent acquisition of Qualtrics. The company has exceeded revenue estimates four quarters in a row. Adjusted cloud revenue grew 48% to nearly EUR 1.6 bln. Cloud revenue growth will be booted all year by the $8 bln acquisition of experience management leader, Qualtircs, for the rest of the year. SAP said the share of more predictable revenue is now up to a 72% mix.
The German software giant also initiated a comprehensive review to evaluate ways to improve its business. As a result, the company raised its profit outlook for this year through 2023.
SAP reaffirmed its outlook for cloud and software revenue for the year while raising its adjusted operating profit outlook to EUR 7.85-8.05 bln from EUR 7.7-8.0 bln.
SAP also reaffirmed revenue for 2020 while raising adjusted profit forecast to EUR 8.8-9.1 bln from EUR 8.5-9.0 bln.
Looking to 2023, SAP still expects to more than triple cloud revenue from EUR 5 billion in 2018, reach more than EUR 35 bln in total revenue and approach an 80% mix of predictable revenue.
SAP plans to host a Special Capital Markets day on November 12 to lay out its path to 75% cloud adjusted gross margins and 500 basis points of adjusted operating margin expansion by 2023. The company reiterated its plans to pay out more than 40% of the prior year's after-tax profits in dividends.
SAP will focus on tuck-in acquisitions and update investors on a multi-year share repurchase program in November.
Activist hedge fund Elliot Management expressed support for the restructuring efforts this morning.
SAP may not be the sexiest software stock in a sector that's on fire. Investors are clearly happy with strong results and an improved profit outlook that comes with a new a commitment to financial discipline.