Analyst Note| Julie Bhusal Sharma |
SAP finalized third-quarter results, which were previewed last week, included a miss on our top-line expectations with a low-quality beat on the bottom line. Sapphire Ventures continued being a strong contributor to results, which is a positive in isolation--though the irregularity of the venture group has us wishing earnings beats were stemming from the core business. SAP reiterated its improved guidance that came with its earnings preview, as SAP is seeing healthier core demand for the end of the year. We are maintaining our fair value estimate for SAP at EUR 131 per share. We continue to think SAP will lose market share in the enterprise resource planning and database management services space as the narrow-moat company undergoes a negative moat trend due to vulnerable switching costs amid the mass cloud migration. Nonetheless, both SAP’s addressable markets are experiencing robust growth, which we think will still allow for the company to see healthy top-line growth and margin expansion in the future. Shares are down 3% upon results to near EUR 120 per shar share, leaving SAP shares fairly valued.