SAP (FRA: SAP; NYSE: SAP) released their Q4 2019 earnings with mixed results compared to estimates and softer than expected forecast for 2020.

As one of Europe’s biggest software firms measuring in at a market cap of €145 billion, SAP is an important benchmark in tech outside the U.S. and a key provider of ERP (Enterprise Resource Planning) software to corporations around the world.

The firm reported today that non-IFRS revenues grew 8% compared to the same quarter last year up to €8.05 billion but missed consensus estimates of €8.24 billion.

While growth in new cloud bookings came in at a healthy 19% year over year and cloud revenues growing 35% year over year, the trend of moving enterprise software into the cloud and benefiting from SaaS (Software as a Service) continued to benefit the company. However, the rest of the firm’s revenues from software licenses and support grew at a much more glacial pace of 1% and actually lost 1% if measured in constant currency.

For the fifth year in a row, we delivered on our full year outlook. I am particularly proud of our strong increase in non-IFRS profits and margins while continuing our remarkable top line momentum. This success would not have been possible without the dedication, innovative spirit and discipline of our people.SAP CFO, Luka Mucic

On the profitability front, SAP exceeded analysts expectations, reporting non-IFRS earnings per share of €1.82 compared to estimates of €1.73. Earnings per share were up 21% compared to the same quarter last year which is also thanks to the healthier margins brought in from the shift to cloud services compared to legacy on-premise software.

SAP also updated their guidance for 2020 financial results and this is where the growth and margins from the shift to the cloud run headlong into competition. The company expects cloud revenues of between €8.7 to €9 billion (growth of 24-28%) and total revenues of between €29.2 to €29.7 billion (growth of 6%-8%).

The slowdown in growth of the cloud revenues for the coming year is a sure sign that competition in enterprise SaaS from the likes of Salesforce (NYSE: CRM) and Workday (NASDAQ: WDAY) is intensifying.

SAP’s stock had a solid 2019 posting a 36% gain which was slightly higher than the 31% return on the overall S&P 500. The European software maker’s stock was hurt, however, in trading on the Frankfurt exchange after releasing earnings down 3.5% at the time of publishing.

The market loves software stock but only if growth and margins keep growing and while SAP kept the market happy in 2019, the 2020 guidance from the company has added a note of caution to investors.

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