Analyst Note| Julie Bhusal Sharma |
SAP’s new RISE program, which is a single-contract offering to digitally transform customers’ enterprise software, helped drive growth across SAP’s cloud offerings over the second quarter. While SAP well surpassed Factset consensus for IFRS and non-IFRS EPS, the market was expecting more from cloud subscription growth, as the company missed top-line Factset consensus by EUR 30 million. The modest miss was offset by improvements SAP made to the remaining fiscal year outlook. Altogether, we are maintaining our fair value estimate of EUR 102 per share ($120 for U.S. ADR shares) for this narrow-moat name. Shares are down 3% upon the news, but we still view the company to be in overvalued territory, as we believe the market could be ascribing greater long-term growth for the company, due to our having less confidence in customer retention as its customers migrate to cloud software solutions.