HThe share price of the software company SAP was hit hard on Monday morning. Before the trading session, there was already evidence of a sharp drop in the share price, the listing then opened on the stock exchange, 20 percent in the red just above the 100 euro mark, at its lowest level since the beginning of April.
This of course also pulled the Dax deeper into the red, because with currently almost 12 percent, SAP is by far the largest value with its market capitalization of 134 billion euros on Friday.
“We want to remain a growth company”
SAP has lowered its annual targets and the medium-term outlook. CEO Christian Klein wants to prioritize growth investments in order to “not sacrifice the success of our customers to the short-term optimization of our margin”. Customers increasingly asked for software from the cloud for use over the Internet. In this respect, maintaining the old medium-term goals with a focus on one’s own profitability would have been against their wishes. “We want to remain a growth company,” said CFO Luka Mucic.
In the next two years, SAP intends to invest an amount in the mid three-digit million range in growth with software via the Internet. Above all, existing customers should now be encouraged to switch. Cloud contracts are only as lucrative as software licenses for high one-off payments with a longer term. This will likely significantly inhibit the growth of the adjusted operating margin through 2023.
Analysts reacted cautiously. JPMorgan expert Stacy Pollard canceled her recommendation and also removed the papers from the investment bank’s “Analyst Focus List”. Most of the other houses, however, retained their recommendations.
Andrew DeGasperi from the private bank Berenberg was particularly surprised by the reduced sales outlook for the cloud business for 2020 “so shortly before the end of the year”. Baader Bank points out that although the software company disappointed with sales and operating results, the bottom line was that it surprisingly increased profits thanks to an unexpectedly strong financial result. All in all, the statements indicated a more radical change to cloud software, which is likely to displace SAP’s traditional business with server-based software more than previously communicated. This would make the sales and profit development even more predictable in the two transition years that are now to come.
The feared medium-term margin setback is now here, according to the British investment bank Barclays. The focus is primarily on the medium-term goals. The major Swiss bank UBS called the figures for the third quarter lackluster. It is overshadowed by the lower medium-term goals. Average market estimates for operating income in 2023 could now drop 20 percent. Paradise has been postponed, investors need patience.
Meanwhile, SAP is sticking to plans for the IPO of its American subsidiary Qualtrics. The preparations will soon be over and the division had a good third quarter. In the summer, the Walldorf-based company announced that it wanted to list the company it had acquired for eight billion dollars.
The events around SAP weighed heavily on the Dax, but they are not solely responsible for the minus of 2.3 percent on Monday.
The rampant coronavirus pandemic is generally putting a strain on market sentiment. “It is becoming increasingly clear that after the first wave, the second wave will now also leave its mark on the company’s results,” said portfolio manager Thomas Altmann from the investment advisor QC Partners.
Lufthansa’s course fell by more than 6 percent. Because of the virus crisis, the airline is again shutting down operations. “We are now back in a situation that is tantamount to a lockdown in its effects,” said the company. In the wake of Lufthansa, the title of the airport operator Fraport lost 3.5 percent. The course of the engine manufacturer MTU also fell significantly by more than 2 percent.