The SAP share price plummets by 23% as margin targets fall.

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SAP reported a 4% decrease in revenue in the third quarter
The technology giant will stop pursuing medium-term margin targets and instead focus on cloud computing
J.P. Morgan lowered its price target from EUR 160 to EUR 120 and changed its rating from “Overweight” to “Neutral”.

The SAP share (ETR: SAP) fell more than 23% on Monday after the German technology company decided not to pursue its mid-term margin targets and to accelerate its move to cloud computing.

Fundamental analysis: SAP focuses on long-term value

SAP reported that its revenue decreased by 4% in the third quarter, which prompted the software company to lower its revenue forecast for the full year.

“We are at a turning point. I am not prepared to trade value for our customers for short-term margin optimization,” CEO Christian Klein told investors.

Investors were also shocked to hear that the technology giant will stop pursuing medium-term margin targets and instead focus on the transition to cloud computing.

“I think it’s a good time to take the margin hit of the transition to the cloud, and the pandemic economy is clearly helping to justify this move,” Greenbaum added.

SAP now expects to generate around €22 billion ($26 billion) from its cloud businesses by 2025, three times what it generates today.

Recently, SAP announced that it has acquired Emarsys, an Austrian provider of cloud marketing software, for an undisclosed amount. This acquisition will help the company to make further advances in its user personalization technology.

Technical analysis: stock plummets

According to today’s results, at least one investment management company has drastically lowered its share rating for SAP. J.P. Morgan lowered its target share price from €160 to €120 and changed its rating from “Overweight” to “Neutral”.

Daily chart of the SAP share (TradingView)

The SAP share price fell by more than 23 % and was again quoted below the 100 mark. Today’s drop in the share price has reduced the company’s market capitalization by $35 billion. The shares are now approaching the nearby support zone at 95.00 hours.

Summary

SAP has abandoned its mid-term profitability goals and will instead focus on the transition to cloud-based software solutions. The SAP share price fell by 23% in the news.

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