Dire earnings results at SAP SE cut 28 billion euros ($33.1 billion) from the German software company’s market value in a matter of minutes, sending a warning to tech investors about the health of sector.
In a surprise release late Sunday, SAP, one of Europe’s largest tech companies, cut its revenue forecast for the full year and said it expected the fresh wave of Covid-19 lockdowns to hurt demand through the first half of 2021. The results caused shares to fall the most since 1999.
SAP’s collapse caused the wider tech market to drop, with Europe’s Stoxx Technology index falling as much as 6.3%, its biggest one-day loss since March. Shares at Salesforce.com Inc.-- SAP’s main rival -- fell 3.1% in New York. Oracle Corp. dropped as much as 5.4%, the most in four months.
“SAP is a bellwether stock for European technology and global software,” said Citigroup Global Markets analyst Amit Harchandani. “They have an insight into Fortune 500 companies and when SAP tells you they see headwinds, there will be some truth to the fact that some of the customers are challenged and don’t have the money to spend.”
SAP’s results have threatened the wider assumption that tech companies should prosper, due to millions of employees working from home. Many of these companies, which deliver applications or services over the internet, have so far resisted the worst effects of a pandemic-fueled recession, and some have thrived while businesses operate remotely.
Instead, major corporate clients may be reconsidering signing large contacts to update their software, as the pandemic continues to limit any global economic recovery. SAP has a wide range of products, many of which rely on winning and renewing major new deals for expenses or human resources software. Unsurprisingly, SAP said business travel had been particularly hard hit over the past quarter.
SAP’s poor results and weak outlook suggest that a recovery for vendors of so-called on-premise software -- based on a company’s own network -- could take longer than anticipated, as clients continue to delay major IT upgrades, analysts at Citi wrote in a note Monday.
“The bigger surprise to us was the sharp deceleration in [SAP’s] cloud backlog numbers,” said Anurag Ranag, analyst at Bloomberg Intelligence. “Given that Workday and Salesforce.com had good quarters with healthy pipelines, it seems that could be losing share to pure-play cloud vendors, which would make it hard for them to attain any meaningful recovery in the near-term.
Investors now have an anxious wait before the major U.S. cloud software providers announce earnings in December. Both Salesforce.com and Workday Inc. report on Dec. 3. Oracle reports on Dec. 13.
— With assistance by Kit Rees, and Amy Thomson