Investment Thesis:
- Leading market share positions in on-premise enterprise resources planning (ERP) and on-premise customer relationship management (CRM) markets with customers in over 180 countries and strong brand awareness.
- The market is undervaluing SAP’s CRM business (relative to its peer group such as Salesforce.com).
- Support revenues and Cloud subscriptions provide recurring revenue, which gives SAP a defensive profile.
- Competent management team.
- Strong operating and free cash flow generation with attractive dividend policy (payout ratio of at least 40%).
Key Risks:
- Slower take-up for HANA and S/4HANA.
- Deteriorating sentiment if the economy and IT spending weakens.
- Market share loss in software revenue driven by cloud migration.
- Aggressive M&A with risk of overpaying.
- Additional opex spending dampening margin expansion.
- Key-man risk due to management changes.
- Competition from other established players like Microsoft, Salesforce.com and Oracle.
- The CFO Luka Mucic departure in March 2023 is a negative.
Key Highlights:
- For FY22 management expects accelerating cloud revenue growth, supported by strong traction of SAP S/4HANA Cloud, leading to (in CC) Cloud revenue of €11.55–11.85bn (up +23-26%), Cloud and Software revenue of €25–25.5bn (up +4-6%) with share of more predictable revenue (total of cloud revenue and software support revenue) increasing +300bps to 78%, non-IFRS operating profit of €7.8–8.25bn (flat to down 5%), FCF of >€4.5bn (vs €5.01bn in pcp), effective tax rate (IFRS) of 25-28.0% (vs 21.4% in pcp) and an effective tax rate (non-IFRS) of 22-25.0% (vs 19.9% in pcp).
- By 2025 management continues to expect total revenue of >€36bn with Cloud revenue of >€22bn, non-IFRS operating profit of >€11.5bn with non-IFRS cloud gross margin of ~80%, more predictable revenue share of 85%, and FCF of €8bn.
- The Company announced a new share repurchase program with a volume of up to €1bn to service future share-based compensation awards, which is planned to be executed in CY22.
- Revenue growth of +19% in CC to $9.59bn with S/4HANA growing +47% in CC to $1.1bn.
- Cloud backlog growing +32% (+26% in CC) to $9.45bn with S/4HANA cloud backlog up +84% (+76% in CC) to $1.71bn.
- IFRS cloud gross margin improving +40bps to 67%.
- ‘RISE with SAP’ continued to gain traction, closing more than 650 customer deals in 4Q21, bringing total customer count to 1,300 since launch in 1Q21, and accelerated adoption momentum in cloud with SAP adding ~1,300 SAP S/4HANA customers (>2x the last four quarter average of 600) in the quarter (~50% customers were net new with win rate against competitors >70%), taking total adoption to more than 18,800 customers (out of which ~5,000 are S/4HANA cloud customers), up +18% over pcp, of which more than 13,100 (~70%) are live.
Company Description:
SAP SE (SAP) is a global software and service provider headquartered in Walldorf, Germany, operating through two segments: Applications, Technology & Services segment, and the SAP Business Network segment. The Applications, Technology & Services segment is engaged in the sale of software licenses, subscriptions to its cloud applications, and related services and the SAP Business Network segment includes its cloud-based collaborative business networks and services relating to the SAP Business Network (including cloud applications, professional services and education services). SAP is the market leader in enterprise application software and also the leading analytics and business intelligence company, with the Company reporting that more than 77% of all transaction revenue globally touches an SAP system.
(Source: Banyantree)
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.
Investment Thesis:
- Strong market position in online advertising.
- Value accretive acquisitions in existing and new growth areas.
- Focus on innovation across advertising businesses, which should help to sustain growth.
- Strong and competent management team.
- Strong balance sheet (net cash position) giving flexibility to invest in growth options or undertake capital management initiatives.
- Social media dominance with brands like WhatsApp, Instagram and Facebook.
- Potential earnings upside from rolling out payment solutions and cryptocurrency.
Key Risks:
- De-rating should growth rates miss expectations.
- Growing competition from other platforms (e.g., TikTok).
- Threat of increased regulatory scrutiny, including concerns around consumer privacy and personal data (e.g., AAPL’s new iOS allows users to stop companies from tracking their movements).
- Deterioration in economic conditions, which would put pressure on the advertising revenue.
- Competition from companies like Alphabet Inc. and Amazon.com Inc. could put pressure on margins.
- Potential return from investment on new, innovative technology fails to yield adequate results.
- Key man risk if the founder and CEO Mark Zuckerberg decides to depart.
Key Highlights:
- Total revenue grew +20% (+21% in CC) to $33.7bn, with Family of Apps (Facebook + Instagram + Messenger + WhatsApp + other services) revenue up +20% to $32.8bn (ad revenue growth of +20%/21% in CC to $32.6bn with total number of ad impressions served across services increasing +13% and the average price per ad increasing +6% was partially offset by -8% decline in other revenue to $155m due to a decline in payment revenue earned from games) and Reality Labs (AR & VR related consumer hardware, software and content) revenue up +22% to $877m, driven by strong Quest 2 sales during the holiday season.
- Cost of revenue increased +22%, driven primarily by Reality Labs hardware costs, core infrastructure investments, and payments to partners. Total expenses were up +38% to $21.1bn with Family of Apps expenses up +35% to $16.9bn and Reality Labs expenses up +48% to $4.2bn.
- Operating income declined -1% to $12.6bn with margin declining -900bps to 37% as +6.8% increase in Family of Apps operating income to $15.9bn (margin down -589bps to 48.48%) was more than offset by Reality Labs operating loss widening by +57% to $3.3bn.
- NPAT declined -8% to $10.3bn with EPS down -5% to $3.67, driven by decline in operating income and +32% higher tax.
- Capex increased +15% to $5.5bn, driven by investments in data centers, servers, network infrastructure and office facilities.
- FCF increased +36% to $12.6bn driven by +28.9% increase in operating cashflow to $18.1bn.
- The Company repurchased $19.18bn of our Class A common stock and ended the year with Cash and cash equivalents of $48bn.
- 1Q22 total revenue of $27-29bn, up +3-11% over pcp, negatively impacted by headwinds to both impression (increased competition + shift of engagement to Reels) and price growth (ad targeting and measurement given Apple’s iOS changes + macroeconomic challenges impacting ad budgets + FX headwind).
- FY22 total expenses of $90-95bn (vs prior outlook of $91-97bn).
- FY22 capex (including principal payments on finance leases) of $29-34bn driven by investments in data centres to support AI and Machine Learning.
- FY22 tax rate to be similar to FY21.
- Holding a view that short-form video will be an increasing part of how people consume content moving forward, management continues to replace some time in News Feed and other higher monetizing surfaces to transition services towards short-form video like Reels. (Reels is now FB’s fastest growing content format by far and the biggest contributor to engagement growth on Instagram) and expects pressure on ad impression growth in the near term given Reels monetizes at a lower rate than Feed and Stories, and competition from dominant players like TikTok and YouTube.
Company Description:
Meta Platforms Inc. (NASDAQ: FB) is the biggest social network worldwide focused on building products that enable people to connect and share through mobile devices, personal computers and other surfaces. The Company’s products include Facebook, Instagram, Messenger, WhatsApp and Oculus. The Company also engages in selling advertising placements to marketers, to help them reach people based on a range of factors, including age, gender, location, interests and behaviours.
(Source: Banyantree)
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.
