Analyst Note| Julie Bhusal Sharma |
In the aftermath of SAP’s disappointing third-quarter earnings report, we continue to believe that the narrow-moat enterprise resource planning and database giant has a negative moat trend prompted by a massive migration of clients to cloud offerings. We view these issues as company-specific and not a function of problems throughout the greater software or IT services industries. We still award a narrow moat rating to SAP, as it benefits from high customer switching costs across its on-premises software, but the company is at risk of higher customer churn as customers look to move from its legacy ERP and database systems to the cloud. We maintain our EUR 90 ($105) fair value estimate. After a 20%-plus decline in SAP’s share price this week, we reiterate our belief that shares are fairly valued.