SAP predicts cloud to overtake license revenue in 2018, makes major SaaS acquisition

© SAP
© SAP

The German software giant announced its full year results today, as well as its largest acquisition since the $8.3 billion Concur deal in 2014

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SAP is holding onto its 2020 ambition of hitting €8 billion in cloud revenue after releasing its full-year results for 2017.

For the full year up to 31 December 2017 new cloud bookings rose 26% to €1.45 billion, total cloud subscriptions and support revenue was €3.77 billion and its more traditional software licence business line held up with 2% growth to €4.87 billion.

This led CEO Bill McDermott to predict that in 2018 "cloud revenue is expected to overtake license revenue for the first time" during the earnings call today.

Total revenue for the year was up 6% to €23.5 billion, delivering an operating profit of €4.9 billion, based on IFRS.

SAP set its 2020 ambition to reach €8-€8.5 billion cloud subscriptions and support revenue and operating profits of €8.5-€9 billion back in 2015, and claims to be on track.

Q4 2017 results

The all-important new cloud bookings in Q4 alone were up 22% to €591 million, while software licence revenue fell 5% to a still-healthy €2.06 billion.

The total number of S/4HANA customers is up 46% year-on-year to 7,900. In Q4 SAP added 1,000 S/4HANA customers, of which more than 40% were new, including Standard Chartered, Puma and Emirates.

Unfortunately SAP does not break this number out for on-perm vs cloud deployments, or even which of these are live with the next generation ERP software.

Responding to an analyst question during the earnings call McDermott was typically bullish on S/4HANA in the cloud: "S/4HANA in the cloud is the lead story in the company. If you think about global customer operations and all geographies and industries around the world this is the biggest focus and has the highest ceiling of any product in the portfolio."

Read next: S/4HANA: What does SAP’s next generation ERP mean for customers?

Speaking about the results in general McDermott boasted: "We have a €4 billion-plus cloud business growing faster than most so-called best-of-breed standalone cloud companies.

"Even though we don't guide on it, it's important to note that software licenses grew 2% for the full year, while competitors consistently decline, most of the time in double digits. SAP is still the only company in business software that at scale delivers both fast cloud growth and license growth."

CallidusCloud acquisition

SAP also announced a major acquisition today, with its America unit confirming the purchase of US SaaS company Callidus Software for $2.4 billion.

CallidusCloud offers cloud-based HR, sales, Lead to Money (Quote-to-Cash) systems, marketing, and customer experience software. There are natural synergies here with SAP's own suite of SaaS solutions for HR and sales, but this is mainly a boost to its CRM capabilities.

Callidus last reported revenue of $207 million in 2016, which includes SaaS revenue of $152 million, which will help towards SAP's cloud revenue goals.

Read next: How SAP stopped worrying and learned to love the cloud

CallidusCloud CEO Leslie Stretch said: "We are super excited to join forces with SAP. This move gives customers precisely what they want, the market leading Sales Performance (SPM), Sales Execution (CPQ) and Sales Enablement clouds combined with SAP Hybris and S/4HANA. This is true Lead to Money, beyond CRM and beyond Quote-to-Cash. It's the joined-up Front Office and Back Office Cloud everyone needs for 21st Century Business."

McDermott said of the acquisition on today's earnings call: "We will own the lead-to-cash conversation in the market. SAP will fuse our commerce solutions and S/4HANA fulfilment engine with CallidusCloud solutions to offer the most complete cloud offering in the market.

"CallidusCloud is already a fast-growing company but together with SAP's global scale it will grow even faster, count on it."

McDermott added that this deal was something of a one off and that "you are not going to have SAP on a shopping spree".

"If we do things it will be small unless something were to be very unusual in the market," McDermott said. "So don't think we are aggressively in the M&A market because we are not."

Read next: What's the difference between SAP HANA, S/4HANA and HANA Cloud Platform

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