SAP (SAP) Warns Of $300M Hit to Software Sales, What’s Next?

Trade SAP Stock Your Capital Is At Risk
Ollie Martin
Updated: 22 Apr 2022

Key points:

  • SAP shares dropped as much as 3.5% after announcing an expected $325M hit from its Russia exit
  • SAP reaffirmed its 2022 forecast for cloud revenue between $11.55B and $11.85B
  • The company reported EPS of $0.63, missing g the Street consensus of $1.07

Shares of SAP (NYSE: SAP) dropped as much as 3.5% as the German business software group announced it expects a $325.3M hit from its planned exit from Russia. Its an unprecedented time for global business, as ethical decisions to halt operations in Russia are leaving gaping holes in normal sales expectations. For SAP, the sales hit comes after strength in the company’s cloud business helped it beat Q1 revenue estimates. 

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For some, the Russian embargo has hit harder than others. For SAP, the exit will have a near $350M impact on annual adjusted profit, as well as leading to restructuring charges of between $80M and $100M.

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Still, positives for the company offset the Russian sales hit. SAP affirmed its 2022 forecast for cloud revenue of between $11.55B and $11.85B at constant currency rates. The company noted that the situation in Russia is still uncertain, meaning that other effects could subject its business to, what the company called “materially adverse consequences”.

It's the continued momentum in the cloud sector that has kept investors interested this morning, on track for full-year targets despite the conflict headwind. Also, Q1 is traditionally the weakest earnings quarter in the year.

The company reported adjusted earnings of $0.63, hitting below the Street consensus of $1.07; total quarterly revenue rose to $7.08B, coming in above the $6.87B expected from analysts. Cloud and software revenue also climbed 12% to $6.06B across the quarter. 

The Russian embargo is likely to remain a common feature of forthcoming earnings releases in the coming months, as global businesses predict the large hit to revenue brought about from a Russian exit. In particular, company’s will need to focus on other areas of growth in order to dim the noise from the ongoing conflict. SAP shares are currently trading at a loss of 0.9% moving towards the Friday mid-market session. 

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