SAP cut its profit outlook, triggering a Wall Street ‘bloodbath’ that dragged down Salesforce and Workday, too — raising uncomfortable questions about the health of the cloud software market


Christian Klein SAP
SAP co-CEO Christian Klein.

  • SAP’s surprising weak outlook triggered a stock selloff that also turned the spotlight on demand in the enterprise software market.
  • CEO Christian Klein warned that German software giant has seen “significant investment delays in 2020 in several hard-hit industries.” Other major cloud software makers, including Salesforce, Workday, and ServiceNow, also saw their shares slip as the broader market retreated.
  • “The bloodbath with SAP is spooking investors in SaaS because of the cloud of Covid and the appearance of a big freeze in software spending,” Eric Schiffer, president of Patriarch Organization, told Business Insider. 

  • Other analysts said SAP’s woes highlighted the challenges faced by traditional software makers as the cloud trend accelerates.
  • Visit Business Insider’s homepage for more stories.

SAP’s gloomy outlook, which  spooked Wall Street on Monday, highlighted the growing volatility in enterprise software — and the struggles of traditional tech giants navigating the tricky transition to the cloud.

The German software giant’s stock plunged 23% Monday after it lowered its revenue outlook for the year and projected more sales uncertainty through 2025. SAP shed around $35 billion in market cap on Monday, in what CNBC reports was its worst trading day in 12 years.

That cratering dragged down other cloud software giants, including Salesforce, Workday, and ServiceNow, which also saw their shares slip by the closing bell as the broader market retreated amid continued uncertainty related to the pandemic.

SAP CEO Christian Klein also offered a grim view of the enterprise market, which he said is weighing on the company’s bold bid to expand its cloud business.

“We have seen significant investment delays in 2020 in several hard-hit industries,” Klein said in a conference call with analysts. “Across all industries and geographies, we see an increasing demand to accelerate the move to the cloud. But we also expect software license revenues to decline further from today’s levels also in the future, considering our accelerated cloud transition.”

That signaled bad news for enterprise software, including companies now offering software-as-a-service, commonly referred to as SaaS.

“The bloodbath with SAP is spooking investors in SaaS because of the cloud of COVID and the appearance of a big freeze in software spending,” Eric Schiffer, president of the private equity firm Patriarch Organization, told Business Insider. 

IDC President Crawford Del Prete said the SAP selloff points to “the jitteriness that investors have felt around COVID-19, and underscores how fluid this situation is right now.”

“I think that the length of the weakness associated with COVID-19 in some business segments is starting to weigh on suppliers,” he told Business Insider. “I think the impact will be uneven based on a number of factors, including SaaS application popularity, but this is certainly a strong headwind for SAP.”

The shift to the cloud is a tricky tightrope for SAP

SAP is a dominant player in enterprise software used to run the in-house data centers of big corporations.

Like other traditional tech giants, including Oracle and IBM, SAP is adapting to the rise of cloud computing, which lets businesses set up networks on cloud based platforms, making it possible to scale down or abandon in-house data centers.

It’s a tricky transition. 

SAP’s customers include big corporations that still use private data centers, most of whom are looking to move their networks to the cloud, a trend that has accelerated with the pandemic. 

But SAP and other traditional software companies face a big problem: they’re up against fierce rivals, led by cloud pioneers such as Salesforce and traditional software makers like Microsoft that became more successful in pivoting to the cloud.

Cloud leaders like Salesforce, Workday, and Microsoft, are simply outpacing the traditional software makers, including SAP and Oracle, Jefferies analyst Brent Thill said — and their gain is SAP’s loss. 

“Make no mistake, they are taking share away from SAP and Oracle,” he told Business Insider.

In fact, SAP’s share of the $149 billion software-as-a-service market in 2019 was 4.1%, down from 4.2% the previous year, according to IDC. Salesforce’s share held steady at 7.8%, while Microsoft’s was 7.4%, up from 6.7%. Oracle’s share was 3.7%, down from 4.1%.

“Overall, legacy platforms didn’t move quick enough,” Thill added. “Now, they are paying the price.”

The big question: Is SAP’s downbeat forecast a sign of things to come?

Analyst Michael Dortch of DortchOnIT.com downplayed the impact of SAP’s report on the longer-term prospects of the other cloud software giants, which he argued are poised to continue growing in the pandemic and the era of remote work.

“I am, perhaps naively, optimistic enough to believe the SaaS market is not going away anytime soon, and that a significant downsizing of that market seems unlikely,” he told Business Insider. “Pandemic-accelerated digital transformation efforts will continue, if not increase, for the foreseeable future, and most of these will rely significantly on cloud technologies.”

But he echoed the view that the old guard of enterprise software will continue to wrestle with big challenges.

“We may be witnessing nothing more or less than the displacement of older, more established ‘dinosaurs’ with newer, more agile, and more adaptable ‘mammals,’ Dorth said.

Got a tip about SAP or another tech company? Contact this reporter via email at bpimentel@businessinsider.com, message him on Twitter @benpimentel or send him a secure message through Signal at (510) 731-8429. You can also contact Business Insider securely via SecureDrop.





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