SAP (SAP): The German Cloud Transformation
1. Executive Summary
SAP is the heartbeat of the global economy; 87% of total global commerce touches an SAP system. The thesis is not about buying a legacy ERP vendor, but about the "RISE with SAP" migration cycle. As SAP forces customers to move from on-premise servers to the Cloud (S/4HANA), they unlock higher lifetime value and AI-driven pricing tiers.
Key Thesis Points
- Forced Migration: Support for legacy ECC systems ends in 2027/2030. This creates an artificial "event horizon" where massive global enterprises must upgrade their core systems.
- Cloud Backlog: Current Cloud backlog is growing at 25%+ YoY. This reliable future revenue stream warrants a higher valuation multiple (re-rating from 20x to 30x PE).
- Business AI: SAP "Joule" (AI assistant) is embedded directly into finance and supply chain workflows, making it one of the few practical AI applications that CFOs are willing to pay for immediately.
2. Business Overview
- ERP (S/4HANA): The core ledger.
- BTP (Business Technology Platform): The integration layer where developers build custom apps.
- Concur/SuccessFactors: Travel and HR SaaS acquisitions.
3. Risks
- Implementation Failure: SAP upgrades are notoriously painful. If customers like BMW or Adidas face operational meltdowns during migration, the brand takes a hit.
- ServiceNow: As mentioned in the NOW thesis, ServiceNow is attempting to eat the user-interface layer of ERP, relegating SAP to a backend database.