Good or bad, corporate quarterly results provide shareholders, employees and customers with a financial snapshot of a company – the equivalent of a video freeze frame or Polaroid instant image.
For a company in transition, they also provide an opportunity to look behind the numbers, assess the progress made towards key strategic goals and performance compared to the competition. That is exactly what Bill McDermott, SAP’s chief executive, did this week when he described SAP’s strong Q3 results as “the latest validation of our strategy.”
In particular, he highlighted the triple digit growth in cloud subscriptions and support revenue and new cloud bookings, and he cited the key role played by SAP’s HANA technology, “in defeating complexity and radically increasing the speed so businesses can execute their mission in real-time.”
Indeed, as analysts are now beginning to acknowledge, HANA has emerged as a key competitive differentiator for SAP because it enables customers to simplify their operations, make better informed decisions based on real-time information and transform themselves into next generation digital businesses.
But the latest financial results also highlight another key differentiator for SAP. Unlike many of its competitors, particularly new entrants in the enterprise software and services industry, SAP is a truly global company. (Much more so than most of the companies I have reported on.)
After the third quarter results were announced, I sat down with Rob Enslin, president of Global Customer Operations and a member of SAP’s Executive Board, to ask him about the advantages of being a global company, and dig a little deeper into the regional results.
Rob is unequivocal that it is a big advantage for SAP to have revenue streams that are pretty well distributed on a global basis. Europe is the largest followed by the Americas and then Asia. “But they’re not that far apart,” he says.
This has two key advantages: first, SAP’s global reach enables the company to quickly leverage the sales opportunity when companies like Concur, SuccessFactors and Hybris have been acquired.
Most of the companies SAP has acquired in recent years are North American-based. Typically before they were acquired, about 80-85% of their revenue came from North America. “Our global footprint and scale gives us the ability to take those companies and move them around the world,” says Rob. “I think it’s a huge differentiator for SAP…..our footprint allows customers to truly benefit from our global scale.”
Second, we can offset challenges in specific geographies by strength in other areas. So for example, difficult macroeconomic conditions in some Latin American countries in recent quarters have been offset by strength in mature markets, amongst them the U.S. In the latest period, cloud and software revenue increased by 32% in the Americas region and cloud revenue grew by 139% with new cloud bookings growing by triple-digits.
Similarly, cloud and software revenue in Europe, Middle East and Africa grew by 13% helped in particular by strong software license revenue in Germany and France. Cloud revenue in the region increased by 67% with high double-digit growth in new cloud bookings as the shift to the cloud gathered pace.
In APJ (Asia, Pacific and Japan) cloud and software revenue grew by 8%, with both cloud revenue and new cloud bookings growing in the double digits. India and South Korea both reported strong cloud and software revenue results offsetting weakness in other markets.
“We got a lot of growth out of emerging markets for many years,” explains Rob, “because of our scale, because of our breadth on a global basis, when China takes off, SAP takes off in the markets like India, Australia, the mining and oil resource countries, Brazil, Latin America. When you see a little bit of a pull back, we feel that as well.”
Even the market in Russia – buffeted by the oil price slump and sanctions imposed by the West after the annexation of Crimea - is looking more positive. “If I look at our Russian team, I think they’re amazing, you know they’ve taken it on the chin for the last couple of quarters,” says Rob. “What we see now is that business is going to stabilize and come back.”
He believes SAP is particularly well positioned in the emerging markets as customers begin to move to the cloud. “I’m actually excited actually to be honest. I feel really good. I feel like we’ve worked our way through a number of economic uncertainties …and we should see an uptick across the board as emerging markets move to the cloud we’ll be there.”
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