I am a market analyst, not a financial analyst. I worry about economic health of vendors, not their daily market cap. So I tend to not write about quarterly results. But a 20% stock price drop in a session is a wake up call, so here are some thoughts
First the "this too will pass" reaction. The market is even more volatile than usual - no US stimulus in sight, COVID-19 cases spiking again in Europe, uncertainty about the US elections. Did SAP deserve a 20% hit? In a calmer market, probably would have been much less. The fundamentals have not deteriorated much. It still has a blue chip customer base across countries, across industries. In the last few months, its Amplify initiative has done pretty well. Its Commerce capabilities have done well as companies scampered to new B2C markets.
The problem is more about adjustments. SAP is not the only guilty vendor which keeps trying to sell what was selling in January and pretending the world has not turned upside down. They continue to push S/4HANA when the market has been desperate for what I call vertical "edge" applications - telemedicine, distance learning, PPP loan processing, last mile delivery and many others which has allowed some to survive and others to thrive during the pandemic. When SAP talks industries, S/4 core functionality looms large. When they talk CX, they talk about why integration with inventory availability is important. It is but so are robotic warehouses and efficient last mile delivery. That is a reason many companies go with 3PLs and sell through Amazon and Shopify. SAP also continues to rely heavily on larger SIs. That has been a turnoff and big ticket item for customers for years, but even more so these days with travel and budget restrictions.
In contrast, Marc Benioff of Salesforce has called for vendors to be "market relevant". I was recently part of their Industries Summit (see a write up here). I heard about Work.com for vaccines, I heard customers talk telemedicine, I heard MNCs talk about visiting small stores on a weekly basis across countries even with lockdowns. Salesforce could have just talked about what they had in the bag in January but this was so much more compelling.
The good news is SAP has lots of bite-sized products - Qualtrics, IBP, AIN, Ariba and many more. But they don't make it easy for customers to find them. When I wrote SAP Nation 3.0, I had to push to be introduced to customers on these secondary products. They kept showing me S/4 customers. But they do have many of those customers. And they have many markets they did not develop properly in the last decade - I had a whole chapter on smart products, digital advertising, Industrial Internet, automation, vertical functionality and others they can still develop.
My book was sub-titled "Manifest Destiny". Drawing on US history, I wrote
"In his inaugural address in 1801, U.S. President Thomas Jefferson had talked about a nation “with room enough for our descendants to the hundredth and thousandth generation.” A couple of years later, Jefferson instructed Lewis and Clark as they began their pioneering westward trek: “Those who come after us will fill up the canvas we begin.” Jefferson was an optimist and helped fire up a country’s imagination for a massive westward expansion. SAP needs a similar call to action."
SAP has the best enterprise customer base - bar none. They just need to broaden out their product portfolio. For too long they have emphasized HANA, now S/4HANA.
Westward, ho!
