Analyst Note| Julie Bhusal Sharma |
SAP beat fourth-quarter expectations on the top and bottom lines compared with FactSet consensus but came under our in-house revenue and adjusted earnings expectations. Cloud and software revenue, which should be a bright spot for SAP in the shift away from its legacy offerings, continues to be susceptible to weakened transactional revenue for offerings like Concur amid the pandemic. However, the enterprise resource planning giant still saw profitability improvements in the quarter even with top=line declines. Earnings results came one day after SAP’s IPO of Qualtrics. While we were initially skeptical on the Qualtrics acquisition, we’re encouraged that SAP came to terms with this sooner rather than later, as the IPO led to an implied valuation of Qualtrics of $18 billion, or $10 billion more than what SAP paid for it two years ago. As for our valuation of SAP, the positive impact of the time value of money was offset by our lowered 2021 forecasts as a result of updated guidance. Consequently, we’re maintaining our fair value estimate of EUR 102 per share ($123 for the U.S. shares). The shares were down just 3% upon the news, leaving the narrow-moat stock overvalued, in our view.