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SAP’s Profitability Is Not as High as You Would Think

What’s interesting about SAP is that its profitability is not as high as you would think

Have you seen “SAP” somewhere?

  • Job qualification as SAP experience
  • SAP skill is shown on LinkedIn
  • Training programs
  • SAP job roles in areas such as Accounting, HR, Business Analysis

What is SAP?

  • A German firm that produces and sells software to manage companies
    • The core offering is Enterprise Resource Planning (ERP) software
  • SAP stands for Systems Applications and Products in data processing

SAP facts

  • 24,000+ global partners
  • Worldwide locations across 130 countries
  • 99 of the 100 largest companies in the world are SAP customers
  • Only German software company in the Dow Jones Sustainability Index
  • >280m subscribers in its cloud userbase

What is ERP

  • Software helps companies run their business easier by a centralized platform for real-time data and information
  • Enhance efficiency, streamline operations, and improve communication across different departments within an organization

SAP Cloud Offerings Overview

  • Infrastructure as a Service (IaaS): Firms can use IaaS from providers like AWS (Amazon) or Azure (Microsoft) to host SAP applications, databases, and related infrastructure
  • E.g. SAP HANA Enterprise Cloud
  • Platform as a Service (PaaS): Enables users to build, deploy, and manage applications in the cloud, such as database services, analytics services, machine learning
  • E.g. SAP Signavio
  • Software as a Service (SaaS): Fully managed in-memory cloud database
  • Integrating enterprise data for faster decisions based on live data
  • Ex. SAP HANA Cloud

Revenue breakdown by revenue type

  • Cloud revenue was the main growth driver in 2022, up by 33%

Cloud revenue breakdown

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Revenue breakdown by regions

Some large companies that use SAP

SAP – Germany – Founded 1972

Info. Tech. sector, 106,495 employees, €30bn revenue

Main segments/products

  • SAP Business Technology Platform
  • SAP Signavio

Its competitive advantage

Competitive advantage through integration and standardization of business processes, global presence, integrated solutions, diverse industry experience, and strong brand reputation.

How it achieved its competitive advantage

By providing integrated enterprise resource planning solutions that standardize and streamline business operations, and a platform-as-a-service offering that supports custom development.

Evolution from a small start-up to a global giant, with Key Milestones

  • Founded in 1972 by five ex-IBM employees, aimed to develop a standard software for real-time business processing
  • The first financial accounting system launched in 1973, named SAP R/1
    • Enabling real-time data access
  • Release of R/3 in 1992
    • A significant shift contributed to SAP’s widespread adoption by large enterprises
  • Introduce in 2000
    • Enhanced integration with web-based access to SAP applications
  • Acquisition of Business Objects in 2007
    • Expanded SAP’s product portfolio to include business intelligence and analytics
  • Transition to cloud computing
    • Offered cloud-based solutions, reducing costs and improving scalability

SAP global success

  • No. 1 supply chain management software vendor in 2021 by Gartner
  • No. 2 in enterprise application software 2021
  • No. 2 global ERP market share in 2022
  • Key player in the global cloud ERP market

Global trends related to SAP’s opportunity

  • Global ERP software market size expected to reach $123bn by 2030 from $51bn in 2021
  • Cloud ERP market size to be valued at $130bn by 2028 from current $72bn
    • Americas is the largest contributor in the market share and generator SAP’s revenue
  • Global SaaS market value projected to grow at 19% CAGR over 2023-2030
    • SaaS revenue was 80% of SAP’s cloud revenue in 2022

What’s interesting about SAP is that its profitability is not as high as you would think

Quarterly results

  • SAPG reported 3Q23 recurring EPS of €1.11, which was +43.2% YoY and +6.3% QoQ
  • The 9M23 result was 86.3% of our full-year forecast

SAP is weaving the Gen AI thread into their solutions


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DISCLAIMER: This content is for information purposes only. It is not intended to be investment advice. Readers should not consider statements made by the author(s) as formal recommendations and should consult their financial advisor before making any investment decisions. While the information provided is believed to be accurate, it may include errors or inaccuracies. The author(s) cannot be held liable for any actions taken as a result of reading this article.