How Much Does the Software Support Segment Contribute To SAP’s Top Line?

SAP’s (NYSE: SAP) Software Support segment is expected to contribute $13.3 billion to SAP’s 2019 revenues, making up 42.1% of SAP’s $31.5 billion in expected revenues for 2019. The Software Support segment’s total revenue is expected to be less than 2x of that from the Cloud subscription and support business. SAP is expected to add $7.1 billion in revenue between 2016 to 2019, out of which the Software Support segment is expected to provide $1.6 billion, that is 22%, of the total expected increase. The revenue growth has been key to SAP’s 69% price appreciation since 2016, further helped by increasing margins. We discuss SAP’s valuation analysis in full, separately.

Below we discuss SAP’s business model, followed by sections that review past performance and 2019 and 2020 expectations for SAP’s revenue drivers and competitive comparisons of its revenue with IBM and Microsoft.

You can look at our interactive dashboard analysis ~ SAP Revenues: How Does SAP Make Money? ~ for more details.

SAP Business Model:

What does SAP offer:

• SAP is a global company headquartered in Walldorf, Germany. It is considered the market leader in enterprise application software and also one of the biggest analytics and business intelligence companies.
• SAP has more than 425,000 customers in more than 180 countries, and the Group has a global presence and employs more than 96,000 people.

Operating Segments:

• Cloud and Software: Cloud and Software subscriptions and support refers to the income earned from contracts that permit the customer to access specific software solutions hosted by SAP during the term of its contract with SAP. Software revenue results from the fees earned from selling or licensing software to customers. Support revenue represents fees earned from providing customers with technical support services and unspecified software upgrades, updates, and enhancements.

• Professional Services: This segment combines revenue from professional services, premium support services, and other services such as training services and messaging services. Professional services primarily relate to the implementation of cloud subscriptions and on premise software products.

What Are The Alternatives?

• Major competitors are IBM, Salesforce, Microsoft, and others.

What Is The Basis of Competition?

• The industry primarily competes in technology innovation; performance; price; quality; brand; its broad range of capabilities, products and services; client relationships; the ability to deliver business value to clients; and service and support. In order to maintain leadership, a corporation must continue to invest, innovate, and integrate. For how its revenue compares to its peers please visit our interactive dashboard – SAP’s Revenue.

Revenue growth of about $4 billion over two years driven primarily by Cloud subscriptions and support segment:

• Total Revenue has seen a continuous growth over the years from $24.4 billion in 2016 to $28.3 billion in 2018. Trefis estimates a further growth and Revenue to reach $31.5 billion and $34.7 billion in 2019 and 2020, respectively.
• Cloud subscriptions and support Revenue has increased at a high pace from $3.3 billion in 2016 to $5.7 billion in 2018. Trefis estimates the growth to continue and revenue from the segment to be around $7.7 billion and $9.6 billion in 2019 and 2020, respectively.
• Software License Revenue has decreased slightly from $5.4 billion in 2016 to $5.3 billion in 2018. Trefis estimates the revenue from the segment to grow slightly to around $5.6 billion and $5.9 billion in 2019 and 2020, respectively.
• Software Support Revenue has increased from $11.7 billion in 2016 to $12.6 billion in 2018. Trefis estimates the revenue from the segment to continue to grow and revenue to reach around $13.3 billion and $13.9 billion in 2019 and 2020, respectively.
• Professional Services Revenue has increased from $4 billion in 2016 to $4.7 billion in 2018. Trefis estimates the revenue from the segment to be around $4.9 billion and $5.2 billion in 2019 and 2020, respectively.