How SAP Plans to Increase Revenue to $30 Billion

Learn how German software giant SAP plans to increase its top line to at least $30 billion by 2017 through innovation, cloud exposure, and strategic acquisitions.

Jan 23, 2014 at 8:00PM

SAP (NYSE:SAP), the largest enterprise resource planning software company in the world, released its full-year earnings guidance early this week. The company announced it is expecting a decrease in operating profit for next year. It changed its profitability targets, and now expects operating profit to reach 35% of sales by 2017 rather than by 2015.

The good thing is that the company plans to increase sales to at least $30 billion by 2017. With revenue for 2013 coming in at $22.7 billion, the company has three years to increase its top line by more than $7 billion. This target is quite ambitious. Oracle (NYSE:ORCL) has acquired several competitors of SAP in order to build a solid portfolio of enterprise resource planning, or ERP, software. And cloud players such as Workday (NYSE:WDAY) continue capturing market share due to their low fees. In this difficult context, how does SAP plan to increase its revenue to $30 billion in three years?


Source: SAP Investor Relations, Baader Investment Conference, 2013, Munich

Explaining the slowdown
After four years of delivering double-digit growth, SAP posted a significant decrease in revenue from software-related services in the latest quarter. This segment experienced a slowdown, with 6% growth versus 14.5% last fiscal year. The company's professional services division also shrunk by roughly 6%.

Although these results look disappointing at first glance, it's worth remembering that the entire traditional tech industry is suffering from lagging sales, due mostly to customers shifting to cloud-based services. IBM, which focuses on infrastructure solutions for enterprises, generated full-year revenue of $99.8 billion for 2013, down 4.6% compared to the year before.

Even Oracle, which has expanded its cloud division in recent quarters to avoid losing market share to Workday and other cloud players, is suffering poor top-line performance. The company's revenue for the second quarter rose barely 2%, slightly ahead of expectations. At the same time, Workday, which sells cloud-based applications to mid-sized corporations looking for human resources assistance, saw its revenue increase wildly.

Considering SAP is still heavily exposed to its legacy businesses, its 6% revenue growth rate is an outstanding achievement.

It's all about the cloud
SAP is successfully using its fast-growing cloud-based services to offset the negative effect that legacy software businesses have on revenue.

Note that SAP's cloud revenue grew 130% in the fourth quarter. The key reason for this is acquisitions. As SAP CFO Werner Brandt mentioned, if you eliminate the impact from acquisitions, the growth rate would actually be 32%. 

SAP's acquisition of SuccessFactors, a company focused on human resources management applications, for $3.4 billion in 2011, and Ariba, a leader in cloud-based collaborative commerce applications, in 2012 for $4.3 billion, are finally starting to pay off.

Moreover,  the fact that SAP pushed back its profit targets suggests the company may be preparing to acquire more cloud companies in an attempt to capture more market share in the promising global cloud services market, which in 2013 grew by almost a fifth, reaching $131 billion in size, according to Gartner.

SAP is also mixing cloud technology with database technology to develop innovative services. For example, the company used the technologies it developed and acquired in the past decade to develop HANA, an in-memory appliance for business applications allowing real-time responses. With the ability to analyze big data and get immediate answers to any kind of business question, the cloud-deployable service has become SAP's fastest-selling product of all time, with more than 3,000 corporate customers and roughly $900 million in annual revenue.

Final Foolish takeaway
Overall, SAP's cloud strategy based on using acquisitions and innovative products to generate revenue looks promising. The company is already generating more than $1 billion in cloud revenue, and it has more than 3,000 subscribers to its HANA service. These figures are likely to increase in the coming quarters.

The tech stock you shouldn't ignore
Opportunities to get wealthy from a single investment don't come around often, but they do exist, and our chief technology officer believes he's found one. In this free report, Jeremy Phillips shares the single company that he believes could transform not only your portfolio, but your entire life. To learn the identity of this stock for free and see why Jeremy is putting more than $100,000 of his own money into it, all you have to do is click here now.

Click here to add SAP to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

Fool contributor Adrian Campos has no position in any stocks mentioned. The Motley Fool owns shares of Oracle. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers