“We’re the fastest growing cloud company in the enterprise software space,” says SAP CEO Bill McDermott. “We grew total revenue by 16% and grew cloud 48%. Let me just put this on the line. When you grow cloud 48%, that’s 80% faster than Salesforce, that’s 30% faster than Workday. So when you have a franchise that’s growing your core business in double digits, the cloud faster than anybody out there, and you’re progressing the margin one point per year between now and 2023.”
Bill McDermott, CEO of SAP, discusses SAP’s amazing growth over the last quarter, especially in cloud, in an interview on CNBC:
Fastest Growing Cloud Company In the Enterprise Software Space
This is a good start to the year. It’s what the capital markets have been waiting for. They’ve been getting all kinds of revenue growth. We’re the fastest growing cloud company in the enterprise software space. They wanted to see the multiples on the margin. As we raised our full-year guidance we committed to improving the operating margins by one point per year for the next five years. Now after a $75 billion investment in innovation for our customers, our shareholders are saying wow, this is the moment I get the multiples on the margin and therefore the leverage in the share price.
Our cloud gross margins can improve to 75% between now and 2023. We’re hiring the absolute very best people in the world in artificial intelligence, machine learning, big data, all the areas that our customers want us to go. It’s not the number of people, it’s getting the absolute very best people. If you hire right, you manage your cloud gross margins right, and you have a highly inspired customer base where you’re growing with high renewal rates, you get tremendous leverage on the operating margin.
The Company Really Is On a Roll
What we’re doing is when we did restructure, and that was announced in Q4 and we executed it in Q1, we basically said we’re going to take about 4,400 people from areas that were not part of the new economy and hire to those tremendous standards. We’re bringing in the best data scientists in the world, best machine learning individuals out there, best enterprise application software coders around the world, and we’re developing in China, Israel, the United States, and in Europe. The company really is on a roll.
We’re almost done (with the restructuring) in the sense that we accounted for most all of it in Q1. We are finishing it up in the next quarter right now. For example, it’s being executed in Germany, but the majority of it has been handled. The stock today (is way up). We grew total revenue by 16% and grew cloud 48%. Let me just put this on the line. When you grow cloud 48%, that’s 80% faster than Salesforce.com, that’s 30% faster than Workday. So when you have a franchise that’s growing your core business in double digits, the cloud faster than anybody out there, and you’re progressing the margin one point per year between now and 2023, I think that’s why the shareholders have the stock up 8%.
What’s On My Mind is Where the Customer Needs Us To Go
All competition is on my mind. But what’s really on my mind is where the customer needs us to go. We weren’t losing to them. What the shareholders wanted, and we surveyed them, we had a capital market stay in New York and we used Qualtrics to survey them, they said we love your revenue growth we know you’re gaining share we just want more operating margin leverage out of the company. That’s what we gave them this quarter. It took us ten years and $75 billion in R&D and M&A to get to the point now where we have everything we need. We don’t need to do any more big M&A, we just need to perform well and spin-off margin and free cash flow for our shareholders and the stock goes on a run.
They (our customers) know we’ve given them so much innovation. It’s coming at them so fast that now they’re saying help me integrate it, help me fully leverage it across the enterprise and get the value from it. Interestingly, the customers and the shareholders are both in the same place. They’re saying you’ve done unreal things, now let’s dig in and drive real value from all the things that you’ve done. We bought an $8.3 billion dollar company called Qualtrics. We now took over a new category called experience management where we can actually tell the consumer experience inside or outside the company in real time. We have data now.
So think about this, if you’re running a company and you want to recruit to retire process in your company, how do my people feel when I recruit them? How did I feel when I trained them? Am I coaching them? Am I teaching them? Am I giving them everything they need in their compensation plan? We know this all now in real time with the Hana database built into the human capital management process. We do things that no other company can do.