German software maker SAP cut its earnings outlook today in a press release that will give fodder to both its fans and its critics.
The company reduced the outlook for its annual operating profit. Not happy news for investors, right? But it was cutting the forecast because more customers are switching to its cloud services. That's good, right?
Taken together, the latest update highlights the tricky balancing act that legacy companies like SAP face as big customers move away from the traditional packaged software business toward cloud-based services.
"We are accelerating our shift to the cloud with more than 40% revenue growth in the cloud," said Bill McDermott of SAP in a statement. "Our portfolio depth in the cloud, global scale, and industry domain expertise are the bedrocks that separate us in the marketplace."
SAP will report an operating profit of $7.1 to $7.4 billion, it said today. Previously, the company had said it would post $7.4 billion to $7.65 billion in operating profit.
The company pointed to the growth in cloud services as evidence that its revenue is undergoing a big shift.
The licenses sells for packaged software deals provides more money up front, but those deals are slowing, cutting into short-term revenues.
Cloud services operate on a subscription model, which means less money up front but more regular revenue over time. The company is confident that the cloud deals being made today will bolster earnings in future quarters, SAP executives said in a press release.