SAP Records Strong Q1 Performance
by Robert Holland, VP and Research Director, SAPinsider
While 2020 was somewhat mixed for SAP from a revenue standpoint, SAP announced yesterday that their first quarter of 2021 had been exceptional. Almost the first words used by CEO Christian Klein to describe the results were that this was “just an amazing start to 2021”, and that “this really confirms the strategy to drive business transformation to the cloud”. Overall, non-IFRS Total Revenue increased 2% at constant currencies, and non-IFRS operating profit increased 24% at constant currencies, but the big jump was in cloud revenue.
RISE with SAP Hits 100 Customers: Leads Cloud Success
While only launched at the end of January, Klein stated that “RISE is already a game changer” when it comes to both the product itself, and the positive impact that it is having on cloud revenues for SAP. Klein stated in the call that RISE was off to a “great start” with over 100 deals closed in Q1. SAP also saw an uptick in cloud renewals, as well as an increase in current cloud backlog by 19% at constant currencies. (SAP defines current cloud backlog as the contractually committed cloud revenue they expect to recognize over the upcoming 12 months as of a specific date.)
While cloud and software saw a 6% increase in non-IFRS revenue in constant currencies, most of this growth was attributable to non-IFRS cloud revenue growing 13% at constant currencies to €2,147 million. There was strong performance across all regions, though the most revenue growth was in EMEA and APJ. EMEA, led by a strong performance in Germany and Switzerland, grew by 24% in cloud revenue at constant currencies. And in APJ, the home region for SAP’s new Executive Board Member for Customer Success Scott Russell, there was an 18% growth at constant currencies.
Where SAP had less success was in the Americas. Although both Canada and Mexico were called out as having a robust quarter, cloud revenue only grew by 7% at constant currencies in the Americas, while total revenue dropped slightly indicating a slower than anticipated recovery in the region. With the US accounting for slightly over 80% of revenue from the region, the fact that there was a 2% drop in total revenue for the US compared to the same quarter in 2020 shows there is still some way to go. In fact, total revenue for the Americas lagged that of EMEA by nearly 5%, though cloud revenue from the region accounts for more than half of SAP’s total cloud revenue.
Providing an update on strategy, Klein said that SAP plans to deliver the Intelligent Enterprise in the cloud. There are two goals that SAP wants to achieve to make this strategy successful. The first is to take the customer base to the cloud in core ERP. The second is to establish the SAP Business Technology Platform as the key platform based on one data model which will securely support SAP and non-SAP applications in the cloud. Klein said that the first goal is the most demanding, but that RISE with SAP contains both these features and the success that it is already seeing will help customers transform the enterprise.
SAP S/4HANA Growth Continues
During the first quarter, SAP reported that SAP S/4HANA customers increased by approximately 400 to over 16,400. Klein also said that over 9,600 of these were live, a jump of around 900 from the 8,700 reported in January at the end of the previous quarter. What was interesting was that Klein stated that more than 50% of the additional SAP S/4HANA customers were net new. While this demonstrates that SAP has continued to grow their ERP market share since the launch of SAP S/4HANA by attracting net new customers and competitive replacements to the platform, it also indicates that there is still significant work to do migrating their existing enterprise ERP customer base – SAPinsider’s SAP S/4HANA Migration report published in March showed in increase in those with no current plans for SAP S/4HANA for the first time since we began tracking the metric.
The most significant growth area for SAP S/4HANA was that of SAP S/4HANA Cloud, which saw a 43% growth in revenue at constant currencies to €227 million. At the same time, the SAP S/4HANA current cloud backlog also increased by 43% to €1.04 billion with SAP having contracts in place for that revenue over the coming year. This growth in SAP S/4HANA Cloud was also apparent in SAPinsider’s State of the Market report, where over 27% of respondents implementing SAP S/4HANA said they were planning on using SAP S/4HANA Cloud. This is a significant jump from the just 11% who have already deployed SAP S/4HANA Cloud.
What Does This Mean for SAPinsiders?
The growth in cloud revenue in all regions shows that organizations are starting to plan for and implement increased spending in 2021 with a focus on the cloud and SAP S/4HANA. Some of this is likely to be plans deferred from 2020, but SAP is counting on the increase in cloud revenue continuing to increase across the year and they updated their outlook for 2021 based on the strong cloud performance this quarter. But what should you plan for as a member of the SAPinsider Community?
- Lean more about RISE with SAP, especially if you are building your business case. While some CIOs that SAPinsider has talked to indicated that they thought RISE is more targeted at those who have not yet started the move to SAP S/4HANA, with SAP positioning RISE as a starting point for business transformation and a cloud journey, you should understand more about what it is and how it will impact you. SAPinsider is running a series of webinars in May and June on the topic, with the first one answering your questions.
- Leverage SAP’s resources and toolsets to do your due diligence on the impact of transformation. SAP completed the acquisition of Signavio on March 7th, providing SAP with enhanced business process intelligence capabilities. This is already reflected by the fact that SAP Business Scenario Recommendations will evolve into Process Discovery for SAP S/4HANA Transformation. Explore how you can leverage these new business transformation options, Process Discovery is free for all users with an existing maintenance contract for example, and see how they can inform your own planning.
- Evaluate how the SAP Business Technology Platform fits your needs and environment. More than just a rebranding of SAP Cloud Platform, the BTP includes application development and integration suites, SAP HANA and data management, SAP Analytics Cloud, as well as intelligent technologies like AI and ML. While you may already be leveraging some of these features, with SAP planning to have the BTP as the single data model for its customers, educating your teams on this functionality is very important.
- Plan for a cloud future – prepare your skillsets and landscape accordingly. The share of more predictable revenue, the total of cloud and software support revenue as a percentage of total revenue, reached 78% this quarter and SAP is targeting a goal of 75% for the full year. To make this happen cloud revenue must continue to grow, and SAP’s focus on the cloud as the future is not changing. Whether or not your plans currently include the cloud, your future plans with SAP should include that environment and you must educate your teams around and their skillsets to make sure that you are ready for that move.