Morgan Stanley Defends SAP Against Sales Inflation Accusations
Yesterday, analyst Peter Goldmacher of Cowen and Co. raised some eyebrows by accusing German software giant SAP of playing fast and loose with the growth numbers on its HANA product line, in order to, in his words, give the “appearance of market momentum that doesn’t yet exist.”
Today we heard from another analyst following SAP who says quite the opposite. Adam Wood, an analyst with Morgan Stanley, issued a short note to clients critiquing Goldmacher’s findings and urging them to “be aware of headline risk.”
Wood said you can do the same kind of analysis Goldmacher did on any company and come to a similar conclusion. “What he’s saying is that companies have leeway in how they report product growth, so that if you exclude stuff that has been growing very fast at SAP like HANA and Mobile then the rest won’t be growing as fast,” Wood wrote. “If SAP’s overall growth rate was poor it might be useful. But SAP’s overall growth rate is good, [about] 10 percent, and much better than its main peer.”
Goldmacher’s main contention is that SAP has been using aggressive discounts in apps and business intelligence products while holding the pricing line on database and mobile products. The cumulative effect is to make the undiscounted stuff look like it’s growing well on a revenue basis relative to the discounted stuff, which may be growing better.
Wood doesn’t think this is going on, though in at least one sentence he seems to agree that it’s possible SAP is doing exactly what Goldmacher accuses it of: “Anecdotally we don’t think SAP discounts HANA but may discount other products if they take HANA, so they want that business to grow. [There's] nothing unusual or untoward about that,” he wrote. However SAP has said that more than half of its deals for HANA products have been for standalone sales, and not for HANA when packaged with other things.
Take out HANA — SAP’s database appliance product — and mobile, Goldmacher argued, and you find that other products are growing at only 2 percent annually, much more slowly than the industry average for business software.
Wood calls Goldmacher’s note a “poor piece of analysis where the only outcome could be that SAP decides to stop disclosing as much in future in line with their peers, which would be a shame.”
It’s no surprise SAP is taking a little flack for this. SAP has been making noise about HANA’s growth for a while. Co-CEO Bill McDermott called it the “the fastest growing software product in the history of the world” in an interview with AllThingsD earlier this year. And since the world has a sense of irony, McDermott’s enthusiastic pronouncement came only days before SAP sales came in short of expectations in a January quarterly earnings report.
For its part, SAP says it has been consistent in its pricing of HANA and has stuck to its no-discount policy, and that there has been no change to how it reports results.
Fast and loose with the numbers or not, American Depository Receipts of SAP have fallen a tad. Having closed at $80.79 on April 2, they’ve fallen by more than 1.5 percent and closed today at $79.56.