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SAP: It’s a Building Year in Waldorf
Research 2.0, July 2007, Pages: 14
SAP will continue to be a major factor in the software market, and both investors and industry players may underestimate its future position. From an investment standpoint the situation is fairly reflected in the market price.
Executive Description:
SAP is focusing on growth in mid-market and smaller companies by grappling with the related industry trends of both architecting its next generation service oriented architecture (SOA) and deploying the resulting software as a service (SaaS). The complexity of that two-pronged task makes 2007 a building year in Waldorf. SAP has emphasized publicly that it will not reach “volume readiness” in SaaS (and implicitly SOA) until 2008. There appears to be little if any optimism built in to the current share price regarding SAP’s ability to leverage these recent industry trends. SAP stock has dramatically underperformed both Oracle and Salesforce.com by a wide margin over the past few years.
We want to be clear however that SAP’s dominance of large enterprises is quite secure and profitable owing in major part to its comprehensive industry-centric application functionality. Our analysis suggests that the strategy SAP has for long-term growth is credible but that it will take some time to be reflected in operating results. The current company valuation appears to underestimate the value of the SAP franchise, its dominant market share in applications, and its current strong financial position. Our long-term valuation methodology suggests a share price of $52 if the company can be moderately successful in executing its plans.
“SAP: It’s a Building Year in Waldorf”:
- Maps out SAP’s position in the ERP application, middleware and enterprise-application implementation consulting businesses.
- Discusses the dynamics of the ERP, middleware and consulting markets and SAP’s opportunities and outlook in each.
- Explores the transition phase that could enable SAP to expand its share of the ERP applications space, become a bona fide player in middleware and replace the implementation consulting revenue stream with revenue from IT-based business services.
- Identifies the opportunities and risks that SAP faces in the ERP, middleware and services market.
- Examines the financials and specifies a company valuation in the context of the dynamics discussed in the report.
Products covered in this report include:
- NetWeaver
- PeopleSoft
- AS/400
- R/2
- R/3
- A1S
- All-in-1
- Business-1
- Java EE5
- Enterprise services repository
- UDDI 3.0 registry
- SaaS
- SOA
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