Cloudy With A Chance Of Profits

Microsoft and SAP announce deal

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What's going on?

Europe’s largest tech company, SAP, officially announced a partnership with Microsoft on Monday – and some investors can smell dollars in the air…

What does this mean?

SAP, which makes business operations software, announced that its third-quarter revenue grew 10% compared to the same time last year, while its profits grew 15%. But given that the company released its preliminary results a couple of weeks ago, investors already knew which way the wind was blowing. The big news was the official announcement of a three-year cloud computing deal with Microsoft.

The deal (which has been in place for a while, just under the weather radar) will make it easier for SAP’s customers to move to Microsoft’s cloud platform – so they won’t need to worry about costly server maintenance. SAP will benefit too: as part of the deal, Microsoft will resell its partner’s cloud tools to its own customers.

Why should I care?

For markets: Fair-weather friends.
The Microsoft deal boosted SAP’s new cloud sales by 18% last quarter, and it’ll probably help SAP hold on to its current customers too. And this isn’t SAP’s only successful partnership: it’s also been working with Amazon’s and Alphabet’s cloud platforms (tweet this). Investors were on cloud nine, and sent SAP’s stock up 3% on Monday.

The bigger picture: The calm before the storm.
Investors were likely hoping SAP integration brings Microsoft customers too: its stock also rose. They’ll be looking at its cloud business performance closely when the software giant reports quarterly earnings on Wednesday – just as they will with Alphabet and, above all, Amazon. While Microsoft still makes a lot of money from selling Windows – and Alphabet from selling ads – Amazon relies on its cloud business for the majority of its profit. No wonder its investors are hoping it’ll beat Microsoft to secure a $10 billion cloud deal with the US Defense Department.

Originally posted as part of the Finimize daily email.

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