SAP SE O.N. (NYSE:SAP) Q3 2019 Earnings Conference Call - Final Transcript

Oct 21, 2019 • 08:00 am ET

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SAP SE O.N. (NYSE:SAP) Q3 2019 Earnings Conference Call - Final Transcript

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Q & A
Operator
Operator

Thank you so much. [Operator Instructions] Our first question comes from John King from Bank of America. Please go ahead, your line is open.

Analyst
John King

Yeah. Hi and good afternoon, everybody. A couple of questions for me. Firstly, just on the mechanics of the Microsoft deal, I think you're implying, it's about a EUR74 million, EUR75 million run rate of revenue. Can you just explain just how quickly we will see that kind of revenue run rate in the numbers, please, perhaps for Luka I guess. And then just coming back to the cloud bookings. The second question, I guess you could look at this in a number of ways, but depending on the mechanics of that Microsoft deal, I guess, the implied cloud, organic cloud bookings growth, we still, I would say, maybe a little bit below what you're expecting in terms of cloud revenue growth over the next few years. And I guess the question is, would you agree with that and if so, what are the steps are you looking to take in order to try and improve the run rates on the cloud booking side. Thank you.

Executive
Luka Mucic

Yeah, perhaps I would take both of those and then please, Jen, Christian add your color if you want. So on the Microsoft side. It's very simple, a revenue recognition will begin in Q4 and then basically we will have roughly the figures that you are citing, on an annualized basis over the course of the next three years basically. On the new cloud bookings side. Look, I mean first of all, I think, nobody should argue with a 39% new cloud bookings growth and 51% without infrastructure as a service being a good result, of course, it was influenced by the Microsoft transaction. But this is representative with the strategic choices that we are making. We are doubling down on the partnerships with our hyperscalers. We drive healthy and highly profitable cloud platform and S/4HANA business as a result of those partnerships and we focus our HANA enterprise cloud infrastructure as a service business on high value opportunities.

This is exactly the direction that we want our business to take. When it comes to the growth rates in new cloud bookings that we need in order to hit our mid-term objectives, I think I've been talking about this already on a number of calls previously. It's important to note that, first of all the new cloud bookings are not the only source of our revenues and of our growth. Of course, the renewal performance plays a role, the rent in TCV contracts plays a role and we have quite a few of them that actually have a higher number of users or other capacity metrics that are kicking in later years of a multi-year contract. And on the other hand obviously, the pay as you go revenues that we had primarily in our Intelligent Spend Group are also not captured in new cloud bookings.

When you take a look at