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SAP Posts Q2 Profit at Low End of Expectations

Cloud-based software services up, margins down.

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German business software maker SAP reported mixed quarterly results on Tuesday as revenues topped expectations due to a surge in newer, lower-margin cloud software delivered via the Internet, pushing down profit to the very low end of forecasts.

SAP said second-quarter operating profit, excluding special items, rose 13 percent to 1.39 billion euros ($1.50 billion), the bottom of analyst estimates ranging from 1.39 billion to 1.45 billion euros in a Reuters poll.

In constant terms, excluding the effect of translating other currencies into the euro, operating profit rose just 1 percent.

Europe’s largest software maker reported total revenue of 4.97 billion euros ($5.38 billion), up 20 percent from 4.15 billion euros, or 8 percent excluding currency effects. Analysts were looking for revenues of 4.81 billion to 4.96 billion euros.

Operating margin dropped to 28.0 percent from 29.8 percent a year ago. The decline reflected increased investments in SAP’s newer cloud-based software services, where revenues from new sales come later in the form of subscription payments.

A Frankfurt trader said software licenses and profit margins were among the factors likely to disappoint investors. “Expect a volatile but at the end negative share price reaction,” he said.

SAP is battling alongside established U.S. software makers such as Oracle, IBM and Microsoft to boost Internet-based software sales and fend off pure cloud-based rivals, Workday and, less directly, industry pacesetter’s Web unit. in May raised its revenue forecast for the full year, after the cloud software company reported a profit for the first time in seven quarters.

SAP’s cloud subscription and support revenue from continuing operations jumped 129 percent to 555 million euros from 242 million euros in the second quarter of last year. On the same basis, revenue from its mainstay software license business rose 13 percent to 3.51 billion euros from 3.12 billion euros. Without currency effects, software licenses grew 3 percent.

SAP stuck to its outlook for the full 2015 year for non-IFRS operating profit of between 5.6 billion euros and 5.9 billion euros at constant currencies, which represents flat growth to a rise of as much as 5 percent from 5.6 billion euros last year.

(Reporting by Harro Ten Wolde; Additional reporting by Eric Auchard; Editing by Kirsti Knolle and Sunil Nair)

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