Some weeks ago, Frank Scavo wrote a piece where he chided Motley Fool analyst Richard Saintvilus for a failure to fully understand Oracle’s cloud play. At the time. I said to Frank that financial analyst opinion is important from the ‘due diligence’ perspective because the tech industry is littered with great ideas that fizzled. When companies bet on technology they are assuming there is a longevity to the solutions into which they are buying and so when financial analysts piss on any company we should take notice.
However….financial analysts have a specific set of agendas: either to pump or short a stock valuation. They usually have little clue about buyer behaviour and, if my observations are correct, blank out observations that challenge their position based models. At their worst, financial analysts presume to know what is happening inside a company based upon thin data which is then extrapolated to represent ‘fact.’ Such is the case with Peter Goldmacher’s ‘analysis’ of SAP’s revenue.
He successfully goaded Arik Hesseldahl on AllThingsD to write the provocative headline: SAP Accused of Inflating HANA Growth Numbers. This was followed by Larry Dignan basically reprinting Hesseldalhl’s story. Goldmacher claims:
“If we take management at its word and believe that HANA’s two-year license growth [rate] through FY13 is about 120 percent, then this means that the other 90 percent of SAP’s license business, Apps and BI, is growing at … roughly 2 percent, materially below category growth rates,” Goldmacher wrote. “Our research and experience lead us to believe that SAP is allocating product revenue subjectively and that this is resulting in an inflated HANA growth rate. This could give the appearance of market momentum that doesn’t yet exist.”
On its face this is a damning assessment but is it as bad as Goldmacher would like us to believe? SAP’s latest results have been in the public domain for some weeks. At the time, I noted:
Then we come to the core. Here, growth is in single digits overall with analytics accounting for “high” single-digit growth. Here Snabe says that going forward, the company expects the recently announced Business Suite on HANA to boost sales.
In an earnings conversation with Jim Snabe, co-CEO SAP, he acknowledged to me that growth in the core business was in ‘low single digits.’ So what’s new here? Nothing.
SAP has known for some time that core apps growth would at best be flat to marginally accretive. That is because the latest iteration of the big money spinners are really upgrades to old products. SAP is instead pinning its future on HANA as much more than a database and anyone who is bucketing in the database camp is utterly missing the point.
HANA is much more than that. While it might have started out as a poorly thought out (Oracle competitive) database play, it is a development environment that is providing ISVs with extraordinary opportunities to rethink business processes as well as providing the real time platform for both analytics and the transactional systems. This is a big topic and given the attention span of most financial analysts, it is hardly surprising that they come to screwy conclusions.
The fact that Goldmacher finds it difficult to find solid examples of HANA momentum doesn’t mean they do not exist. The fact Goldmacher fails to back his conclusions with anything other than speculation should tell you all you need to know.
From my own experience I see plenty of HANA based innovation (Disclosure: SAP is a video client for partner innovations. We have filmed around 50 examples so far. Small potatoes in the SAP context but indicative of future momentum, some of which represent multi million dollar opportunities.)
The real problem is that SAP has yet to find a model where partner innovation can be scaled so that everyone in the ecosystem benefits. SAP is keenly aware of this and is working to fix the problem. When (not if) it does, then I suspect the doubting Thomas’s will be made to eat their words.
In the meantime, the ever positive Morgan Stanley jumps to SAP’s defence, albeit acknowledging the possibility of discounting in other areas to sweeten the HANA pot.
There’s a few things I know about SAP that are worth reiterating:
- SAP is paranoid about getting revenue recognition wrong – there’s a team of some 70 people working on this topic.
- SAP marketing is often haphazard. One minute HANA is an Oracle killer, next it is the future of the Business Suite. I have little sympathy for these mis-steps yet understand why they occur.
- SAP’s obsession with ‘beating out’ Oracle is self defeating, drawing attention away from what it does best.
- Getting HANA POCs converted to enterprise licences as Snabe has promised is the real metric to which people should be paying attention.
- Seeing Business Suite on HANA momentum is SAP’s next main target. Watch for SAPPHIRE Now announcements. If they are thin on the ground then SAP is stumbling. If not, and customers are talking value, then Goldmacher’s worries disappear.