SAP’s cloud computing business topped 1 billion euros in quarterly revenue for the first time as the German software giant positions itself to challenge Salesforce in the customer relationship management (CRM) market.
SAP reported Tuesday that cloud subscriptions and support revenue grew 18% in the first quarter to 1.07 billion euros while revenue from its legacy software licenses and support business dropped 4% to 3.28 billion euros. Total revenue was flat at 5.26 billion euros.
The key growth metric watched by analysts, non-IFRS cloud revenues at constant currencies, came in at 31%, clearing the 30% threshold set by Deutsche Bank ahead of the first-quarter results as a ‘buy’ signal for the stock.
“SAP’s performance at constant currency was quite remarkable, keeping in mind the tough comps from last year,” Baader Helvea analyst Knut Woller said in a note.
SAP, Europe’s largest tech company by stock market valuation, also raised its sales and profits guidance for 2018 to take into account the $2.4 billion acquisition of U.S. sales software firm Callidus that was announced in January.
In trading Tuesday, its stock rose 2.5% to $108.50.
SAP has been betting on cloud growth to offset the decline of traditional software license sales for its suite of business planning tools. The cloud business “is still just a third the size of the legacy license operation and must grow rapidly for years to come to achieve comparable scale,” Reuters noted.
But new cloud bookings were up 25% at constant currencies in the first quarter. “We grew faster than every ‘best-of-breed’ cloud [competitor] out there,” CEO Bill McDermott said. “Faster than Workday, a lot faster than Salesforce, and a lot faster than Oracle.”
Salesforce reported cloud subscription and support revenue grew 25.8% to $2.66 billion during its fourth quarter ended in January.
McDermott is also expecting that the acquisition of Callidus will boost SAP’s CRM offerings as the company shifts from the back office, its traditional domain, to outward-facing functions.
“Look for SAP to be bolder than ever in markets like CRM,” he said.