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SAP stock forecast: Banking on accelerating cloud growth

By Fitri Wulandari

Edited by Alexandra Pankratyeva

11:35, 28 January 2022

April 20, 2021, Brazil. In this photo illustration the SAP SE logo seen displayed on a smartphone screen
SAP stock forecast: Banking on accelerating cloud growth – Photo: Shutterstock

Established in 1972 as a start-up by five friends, German software company SAP SE has grown into a multinational corporation, operating in 180 countries and serving 440,000 customers. 

Listed in New York and Frankfurt, SAP was one of the first companies that developed standard software solutions for small companies to large corporations. It pioneered enterprise resource planning (ERP) software that helps companies run their business units and operations, such as human resources, finance, procurement, supply chain and other processes. 

While SAP states it is the market leader for ERP software with 230 million cloud-based users and 100 cloud portfolio solutions, it has been facing increasingly fierce competition from software market rivals, including Oracle and Microsoft.

SAP’s ERP system for larger companies – S/4HANA (a high-performance analytic appliance) – is ranked six in the top 10 ERP systems for 2021 by Third Stage Consulting Group, an independent ERP consultancy in Lone Tree, Colorado. Oracle’s Netsuite topped the list, followed by Microsoft 365. 

“SAP helps you to achieve better customer satisfaction. However, it’s not an affordable tool for small organisations as it requires experts to maintain the entire ERP system, which puts an additional cost burden on them,” according to Guru99.com, which provides a free online tutorials library for cloud computing. 

This article will discuss the company’s recent results, risks, and opportunities ahead to help you build a plausible SAP share price prediction.

SAP stock one-year performance

SAP stock analysis: Major price drivers and technical view

SAP stock performance has declined 1.92% over one year from $134.88 a share to $132.28 on the close of trading on 26 January. In a longer timeframe, the SAP share price had rebounded from $106.83 on 26 October 2020 when it plunged 28.63% on the day after it reported a 4% drop in its total revenue for the third quarter of 2020 year-on-year to €6.53bn ($7.27bn) from €6.79bn compared with the same period in 2019. 

Lockdowns to stem the spread of the Covid-19 pandemic hit industries – and subsequently affected the demand for SAP business software. Concur, the SAP software for processing travel and expenses, was the hardest hit as companies slashed business travel due to coronavirus restrictions. 

The situation forced the company to cut its performance target with a total non-IFRS revenue target lowered to €27.2bn-€27.8bn for the full year 2020, from €27.8bn-€28.5bn. At that time, Walldorf, a Germany-based company, was in the middle of transitioning to cloud solutions from on-premise. 

In January 2021, the company launched RISE with SAP, an all-in-one subscription-based digital transformation package. RISE with SAP has become the company’s backbone for growth. 

According to SAP: “RISE with SAP provides our customers with the basic components of an intelligent enterprise in one bundle, complemented with premium services and tools.”

SAP stock five-year performance

SAP fundamental analysis: Latest earnings

In a fourth-quarter and full-year 2021 financial results released on 27 January, the company announced strong growth from its cloud portfolio had driven up revenue to exceed the high end of its revised 2021 outlook. 

SAP reported total revenue increased 2% year over year to €27.84bn – and rose 3% to €28.23bn at constant currencies – due to robust cloud revenue. 

The company’s full-year cloud revenue rose 17% to €9.42bn in 2021 year on year (up 19% to €9.59bn at constant currencies), hitting the high end of the revised full-year outlook – €9.4bn-€9.6bn non-IFRS at constant currencies. 

Cloud revenue from its SAP S/4HANA surged 46% to €1.09bn (up 47% at constant currencies), exceeding the anticipated  €1bn cloud revenue mark. The company attributed the increase to the strong adoption of RISE with SAP, illustrated by the S/4HANA current cloud backlog – a measure of incoming business – rising 84% to €1.71bn (up 76% at constant currencies) in the fourth quarter. 

SAP also closed RISE with SAP deals with more than 650 customers in the fourth quarter of 2021. Since the launch, SAP has won more than 1,300 customers, including large businesses such as Adobe, Panasonic Corporation, IBM, Allianz Technology, Samsung, and Siemens. Additional wins included Philippine Airlines, Software AG, Banco Sabadell, Amadeus, Standard Chartered Bank, Fisker Inc, and Europcar Mobility Group.

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“We are confident that we will continue our Q4 current cloud backlog growth in 2022. This is reflected in our accelerated cloud guidance for 2022 as we make great progress towards our mid-term ambition,” said CFO Luka Mucic. 

The gain in cloud revenue offset an 11% decline in year-on-year software licenses revenue to €3.25bn, down 11% to €3.24bn at constant currencies. 

“However, weak uptake of software licenses and support offerings is a concern for the company. Stiff competition and increasing costs to enhance cloud-based offerings are likely to exert pressure on the company’s profitability at least in the near term,” according to investment research firm Zacks in a note on 26 January.

SAP stock news: Upbeat 2022 performance outlook 

For this year, SAP expects its cloud growth to continue to accelerate. It believes the cloud revenue could increase to €11.55bn-€11.85bn at constant currencies in 2022, up between 23% to 26% from last year. 

It also forecast €25bn-€25.5bn cloud and software revenue at constant currencies, up between 4% to 6% from the 2021 full year revenue of €24.08bn. 

“The pace and scale of SAP’s cloud momentum places the company well on track towards its mid-term ambition,” said the company. 

SAP has set a target to achieve more than €22bn and €36bn non-IFRS cloud revenue and total revenue, respectively. 

SAP stock price prediction: Analyst sentiment

Analysts’ sentiment on SAP stock was mixed as of 27 January. The view from 13 analysts polled by MarketBeat was bullish. Eight analysts rated SAP stock a buy, and five recommended hold as of 27 January. The consensus 12-month SAP stock price target was $112, representing a downside risk of 16.19% from the last closing price of $132.28 (on 26 January). 

SAP stock analyst ratings and price targets

Eleven analysts surveyed by MarketWatch were also bullish, giving SAP stock an overweight rating with a 12-month average price target of $164 per share. 

Zacks, however, recommended a strong sell for SAP stock in the one to three months period, and rated it underperforming for the long term (six to 12 months) with a price target of $116 as of 26 January . 

One of the reasons for the sell rating is that SAP faces stiff competition in the IT services industry, both from providers with greater resources, such as IBM and Oracle, and small firms. To maintain its position in the software market, the company has to invest in new technological developments, which could inflate research and development expenses.  

“This makes the company vulnerable to risks of pricing pressure and loss of market share, which in turn, can adversely impact its financial position, profit and cash flow,” said Zacks.

Commenting on the company’s performance and potential SAP share forecast, Mikhail Karkhalev, analyst at Capital.com, said:

“SAP is one of the world's largest and leading software companies. For Q4 2021, SAP reported better results than analysts expected. The company’s revenues rose by 13% to more than $9bn and net income was $1.66bn. The only reason SAP shares are falling is the collapse in stock markets, due to the tightening of monetary policy by the US Federal Reserve. Once the correction is over, SAP stock could become a very attractive buy.”
 

SAP stock forecasts: Targets for 2022, 2025 and 2027

Several forecasting services have shared SAP stock predictions for the next few years as of 28 January.

SAP stock forecast by Gov Capital estimated the stock could reach an average $149.66 by the end of 2022, and $258.47 by the end of 2023. The website, which uses machine learning to predict long-term prices, suggested that SAP could rise to $599.33 per share by the end of 2025 and $883.10 per share by the end of January 2027. 

Wallet Investor’s algorithm-based stock forecast (as of 28 January) estimated SAP shares to trade at $141.67 within one year time. By the end of 2025, the SAP share price might reach $169.20 per share. Although the service did not provide targets for 2030, its 5-year forecast suggested SAP could hit $179.82 per share by the end of January 2027. 

It’s important to note that past performance is not a reliable indicator of future results. Also, analysts often get their predictions wrong, so you should make your own decision about whether you think the price will rise or fall. Your decision to trade depends on your attitude to risk, your expertise in this market, the spread of your investment portfolio and how comfortable you feel about losing money.

FAQs

Is SAP stock a good buy?

Whether SAP is a suitable investment depends on your investment objectives and your opinion based on your research. Therefore, it’s essential to reach your conclusion about its prospects and the likelihood of achieving analysts’ targets.

Will SAP stock go up or down?

Analysts shared mixed views on the SAP stock forecast for the next 12 months and beyond. The consensus sentiment from 13 analysts polled by MarketBeat was bullish. Eight analysts rated SAP stock a buy, and five recommended hold as of 27 January.

Why has the SAP stock price been going down?

One of the reasons for the decline in the SAP stock performance could be stiff competition in the IT services industry. Another reason could be a broader pressure on the stock market, caused by the tightening of monetary policy by the US Federal Reserve.

Markets in this article

ADBE
Adobe Systems Inc (Extended Hours)
563.52 USD
-2.99 -0.530%
ATT.L
Allianz Technology Trust
3.875 USD
-0.23 -5.740%
AMAe
Amadeus IT Group
62.54 USD
-0.57 -0.910%
SABEe
Banco de Sabadell
1.930 USD
0.025 +1.320%
IBM
IBM Corp (Extended Hours)
187.21 USD
2.01 +1.090%

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