Summary
- SAP announced an exceptionally strong quarter to end a strong year.
- SAP enjoyed spectacular growth in cloud revenue of 75% in constant currency coupled with double-digit growth in software licenses.
- Company announced general availability of its Native Mode Cloud offering called S/4 Hanna which brings its product technology up to the latest of cloud standards.
- The company has stable and experienced management with a record of successful risk taking.
- The company is gaining significant market share from principal rival Oracle.
Introduction:
In the space of a little over two weeks, it appears that the world has turned over in terms of the consensus outlook for growth and economic activity. I have no intention of joining that debate. There are plenty of seasoned and intelligent commentators who have varying points of view as to what is in store for both the global economy and the stock market over the course of the coming weeks and months and years. I think my value add to such a discussion would be pretty minimal.
But that said, even in commenting on the enterprise IT space in terms of the companies and their likely relative performance, one simply has to acknowledge that one wears different clothes when it’s snowing outside than when the weather is warm and sunny or when there is a heat wave. If the barometer now reads stormy some of the picks I have presented are going to languish at best and not produce pretty performance, relative or any other way. When investors decide they want to become risk adverse, enterprise software names are not the first place that they look to find investment opportunities. Even the larger supposedly more stable names will be found to have unpleasant downside potential. As to the smaller names, regardless of their business performance, investors will tend to run away as fast as they can and the only performance to be had amongst that cohort of companies will come in the event that some might be acquired.
I have no belief that we are approaching a scenario that is a reprise of 2008. I imagine that there are some financial institutions who have a raft of bad loans in the energy space but the interrelated web of complex derivative transactions in the mortgage markets that marked the debacle of that year seems to be absent. At least I hope that is the case. But if we are to have either a meltdown or simply a bumpy ride that winds up going nowhere, it behooves investors to rethink their strategy both overall, and particularly in the enterprise IT space for as long as they feel that such a period is going to last.
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SOURCE: Seeking Alpha
Bert Hochfeld
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