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Hype Asset of the Day | February, 6th, 2022


SAP SE (NYSE: SAP)

Based in Walldorf, Baden-Württemberg, SAP SE is a worldwide software firm with European headquarters. To handle client relationships and business processes, it creates enterprise software. The business is the top vendor of corporate resource planning software globally. Software maker SAP remains on track to meet full-year guidance after its cloud business drove faster than expected quarterly revenue growth, it said on Monday, sending its shares up 4%. Given their discussion of the sale of Qualtrics, SAP has seen an increase in mentions by 325% over the last day, prompting investors to wonder what else the company has planned for the near future. Currently, shares of SAP SE trade at 119.90 per share.


Positive Hype

There are many reasons for SAP to have generated such positive hype over the last day, and here are some of them.


  • "In line with SAP’s strategic initiative to streamline its portfolio, SAP has decided to explore a sale of its stake in Qualtrics," SAP said in a statement. "This would be a continuation of the strategy we set at the time of the Qualtrics IPO in 2021. SAP is looking to focus more on its core cloud growth and profitability.


  • The company's cloud business has been growing rapidly, rising 38% in the third quarter to 3.29 billion euros ($3.25 billion).


  • Christian Klein has concentrated on cloud operations since taking over as SAP's sole CEO in 2020. Rather than the erratic up-front cash flows from software licences, Christian Klein has adopted a subscription-based service model that delivers predictable revenue over time.


  • SAP is on target to meet its goals of total adjusted revenue of 36 billion euros in 2025, with 22 billion euros of that coming from the cloud business, CEO says the company might over-achieve this target too.


  • SAP rival Oracle said in September that demand for its cloud services was strong, driving segment revenue up 45% to $3.6 billion.


  • Total revenue grew 5% in currency-adjusted terms to 7.84 billion euros, SAP said, beating analyst expectations of 7.62 billion euros.


  • SAP stuck with its full-year operating profit forecast of between 7.6 billion and 7.9 billion euros, indicating its positive outlook for the near future as well.


  • A strong dollar has helped, and the company has also raised rates for clients to pass on some of its rising costs.



Negative Hype

While SAP might have seen lots of success recently, there are still reasons for the stock to have generated negative hype. Here are a couple of them.


  • SAP will miss its deadline to exit Russia before the end of the year as the German software group has yet to find a buyer for the unit, five sources told Reuters, underscoring the difficulties some companies are facing to leave the country.


  • According to the report, SAP will charge up to 3.3% more for the maintenance of software installations, which, although unlikely, could negatively affect demand.


Conclusion

SAP has a solid set of financials, coupled with its positive outlook and commitment to achieving its 2025 goals makes it worth considering as an investment now. However, there are still concerns over the company’s delay in withdrawing its operations from Russia which could affect business and investor sentiments negatively. Despite this, and considering all the positive factors, SAP is a stock you should definitely have on your radar.


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