SAP Earnings: Concur Shows Resilience and Cloud Growth Indicates Firm Demand; Shares Fairly Valued

SAP’s first-quarter results indicated resilience especially within the most vulnerable of units in its transactional businesses (like Concur) holding up well. Results came in above FactSet consensus on the top line, prompting the stock to rise about 6% upon results. Altogether, we are maintaining our fair value estimate of EUR 119 per share, which places the stock in fairly valued territory. SAP shares are up around 30% year to date, which we attribute to the market better grasping the nuanced story SAP has to tell. On one end, SAP is a narrow-moat name that benefits from switching costs as a result of the difficulty in replacing ERP software that is necessary for day-to-day operations. Yet, on the other hand, we think switching costs are vulnerable for the time being as cloud migrations are difficult regardless of whether an enterprise sticks with the same software vendor or not, thus causing reflection on possible vendor changes. Hence, we believe that Workday will surpass SAP ERP market share by fiscal 2032.