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Are SAP Woes Bad for Oracle and Salesforce?
By: 24/7 Wall St. | October 26, 2020

Having large amounts of revenue exposed to traditional customer relationship management (CRM) software historically has been more of a company-by-company trend than it used to be. That said, when one company manages to suffer handily, it can now drag the entire boatload of competing companies lower. That is exactly what has happened due to a major warning from software giant SAP S.E. (NYSE: SAP).

After falling by more than 20% in a single session, SAP shares were seeing an exponential surge of selling volume and the stock was dragging down some of the stronger U.S. competitors with it. This was simultaneous with a big sell-off in stocks.

Shares of SAP plunged after the European business software giant lowered its 2020 guidance based on prolonged work-from-home and stay-at-home measures in Europe as the COVID-19 cases have spiked higher there and as the recovery in business travel-related spending has weighed on its Concur expense management services. SAP further noted that its move to cloud-based services now signals that recurring software license revenue should keep trending lower.

SAP had seen the same sort of selling that started in February and went through March that plagued most stocks. Its shares then recovered handsomely. Prior to Monday’s sell-off, its shares were still rather positive for 2020. But the worst drop in more than 20 years has weighed on it and rivals.

SAP lowered its operating earnings for 2020, but the drop was not the main cause for concern. After all, the drop was only by €200 million, on the top-end of income down about €600 million to €700 million lower on a new forecast range of €27.3 billion to €27.8 billion. The big damage came from a massive resent on its mid-term targets for 2023 being pushed out to 2025.

Oracle Inc. (NYSE: ORCL) used to discuss SAP as competition, and Oracle founder Larry Ellison would give competitive updates along with every single earnings report. Now Oracle seems to be more focused on the endless number of players in the United States that have become nimble players in CRM, apps and cloud services. In short, it is no longer a zero-sum game wherein a contract win for one vendor is an entire loss for a rival. In fact, companies have become adept at using multiple vendors across all their applications.

Oracle stock was down 4.4% at $57.25 on Monday, which was more than twice the percentage drop on the S&P 500 and Nasdaq Composite Index. Its 52-week trading range is $39.71 to $62.60.

Another large drop was seen in shares of Salesforce.com Inc. (NYSE: CRM). This company has grown organically and via acquisitions, but the most recent earnings report was on the heels of the aggressive software player being named as a member of Dow Jones industrial average. Salesforce has been rather nimble in adding offerings and having strong pricing power, and founder Marc Benioff has led the company to see sales in the past fiscal year be up more than 60% from two years earlier. Refinitiv expects sales to grow more than 21% this year and to grow another 18% or so in the following year.

Shares of Salesforce were trading down 3.5% to $241.75, but on volume that would have not otherwise looked like a panic.

Analyst downgrades were not immediately seen in U.S. rivals of SAP. That said, JPMorgan downgraded SAP to Neutral from Overweight after the news, and other downgrades are likely on the way.

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