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Wednesday, November 25, 2020

SAP stock price crashes 23% as margin targets are dropped

  • SAP reported that its 3Q revenue fell by 4% in the third quarter
  • The tech giant will stop pursuing mid-term margin targets and instead focus on the cloud computing
  • J.P. Morgan cut price objective to 120EUR from 160EUR and changed its rating to “Neutral” from “Overweight”

Shares of SAP (ETR: SAP) collapsed over 23% on Monday after the German tech firm decided to stop pursuing its mid-term margin targets and accelerated its shift to cloud computing. 

Fundamental analysis: SAP to focus on long-term value

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SAP reported that its revenue fell by 4% in the third quarter, which prompted the software company to cut the revenue forecast for the full-year. 


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“We are at an inflection point. I am not willing to trade value to our customers for short-term margin optimisation,” CEO Christian Klein told investors.

Investors were also shocked to hear that the tech giant will stop pursuing mid-term margin targets and instead focus on the transformation to cloud computing. 

“I think it’s a good time to take the margin hit of transitioning to the cloud, and clearly the pandemic economy is helping justify the move,” Greenbaum added.

SAP now projects to generate about 22 billion euros ($26 billion) from its cloud busienss by 2025, which is triple of what is making now.

Recently, SAP announced it acquired Emarsys, the Austrian cloud marketing software provider, for an undisclosed amount. This buy will help the company make further progress with its user personalization technology.

Technical analysis: Shares crash

Following today’s results, at least one investment-management firm slashed stock rating on SAP. J.P. Morgan cut price objective to 120 euros from 160 euros and changed its rating to “Neutral” from “Overweight”.

SAP stock price crashes 23 as margin targets are dropped
SAP stock daily chart (TradingView)

SAP share price crashed over 23% to trade below the 100 handle again. Today’s fall wiped $35 billion off the company’s market capitalization. Shares are now approaching the nearby support zone at 95.00.

Summary

SAP abandoned its medium-term profitability goals and instead will focus on its shift to cloud-based software solutions. SAP stock price fell 23% on the news. 

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