SAP lost more than 30 billion euros in market capitalization on Monday with a 19.33% loss in market value and a mid-market price of 100.76 euros. The group now weighs only 120 billion euros. This is therefore no more and no less than the worst fall of this stock since its first listing in 1995. The group also indicated that it was going to accelerate its transition to the cloud and that it would therefore abandon its medium-term profitability targets, which led to this fall in the stock market. As a result, SAP was struggling to recover from the health crisis and investors reacted immediately.
It was therefore following the severe turbulence that hit the company this year and which notably led to the departure of CEO Bill McDermott, but also following a failed tandem management experience that ended in April that the group took a dive.
However, SAP intended to maintain the medium-term ambition of a one percentage point improvement in its profit margins until 2023. It is therefore the strategic refocusing announced yesterday that has led to the abandonment of previously expressed financial ambitions.
Indeed, this strategic turnaround means that profit margins will be eroded over the next three years before the situation can take a positive turn. Meanwhile, cloud revenues from hosted subscription services are expected to triple by 2025 and weigh as heavily as license sales. It should be remembered, however, that the latter still generate 54% of the group's revenues.
SAP's third quarter results are not so bad, however, with an improved operating margin in a challenging environment. Earnings per share and cash flow also increased 54% for operating cash flow in the first nine months of 2020 and cash flow is up 79% year-to-date.
Other published data shows total adjusted revenues of 4% to €6.53 billion, while operating profit fell by 12% to €1.47 billion according to International Financial Reporting Standards. An increase of 4% excluding IFRS and between 27.2 and 27.8 billion is also recorded over this period.
These quarterly results have of course prompted the SAP group to revise downwards its financial outlook for the full year 2020. The group now expects total non-IFRS revenues to be between 27.2 and 27.8 billion euros, compared with a range of 27.8 to 28.5 billion euros previously.