Bit By Bit


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What's going on?

Europe’s largest tech company, SAP, announced a better-than-expected second-quarter update, and said it’s – very gradually – getting back to business as usual.

What does this mean?

SAP’s update was a preliminary one, so the final numbers at the end of this month might change a little. But generally speaking, the company was pretty surefooted: its revenue last quarter was 2% higher than the same time last year, and its profit was up 7%. That suggests a faster recovery from the coronavirus slump than either SAP or its investors were expecting.

SAP had previously lowered its 2020 earnings growth forecast after seeing its customers hit pause on tech spending earlier in the year. But now that a recovery seems to be on the cards, the software giant’s confirmed the earnings growth it promised at the end of its first quarter is achievable after all.

Why should I care?

For markets: Going by the book.

SAP’s stock rose 7% on Thursday after the company’s update, which might reflect the relief some investors are feeling that European tech firms – still firmly in their US rivals’ shadows – have seen their fortunes improve. A better-than-expected quarter, meanwhile, should result in a higher forecast for the rest of the year, all else equal. But seeing as SAP left its forecast unchanged, investors might’ve interpreted it as a textbook example of underpromising in hopes of overdelivering later on – which typically results in a stock price boost.

The bigger picture: All wiggled out.

America’s biggest tech companies have continued their ascent this week, with the likes of Apple, Amazon, and Microsoft driving the country’s tech-heavy stock market index to record highs. But that rise might not be sustainable (tweet this). Deutsche Bank has warned that the speed and size of the gains don’t leave much wiggle room for another uptick when earnings reports are released later this month. JPMorgan, for its part, seems less worried: the bank reckons stocks are still attractive compared to bonds.

Originally posted as part of the Finimize daily email.

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