 AP SAP co-ceo Bill McDermott |
Wood called the competitor's research note a "Poor piece of analysis where the only outcome could be that SAP decides to stop disclosing as much in future in line with their peers which would be a shame."
However, Wood also did reluntantly confirm that his competitor, Cowen & Co.'s Peter Goldmacher, wasn't completely off-base.
It all started when Cowen & Co.'s Peter Goldmacher questioned how SAP executives can claim that their uber important product,
HANA is a realtime in-memory database appliance that SAP hopes will steal business from Oracle. SAP's co-CEO Bill McDermott has declared that HANA was "the fastest growing software product in the history of the world."
Goldmacher looked into SAP's growth claims. He concluded that SAP is likely bundling products together, offering big discounts on its apps, while charging full price for HANA. ("Our research and experience lead us to believe that SAP is allocating product revenue subjectively and that this is resulting in an inflated HANA growth rate," he wrote.)
That will make revenue for HANA grow faster, but at the expense of the growth of its more important, bread-and-butter software products. He says that if you back out the HANA numbers, and SAP's other hot software, mobile, then SAP's
Obviously, there's nothing wrong with bundling products together and offering discounts. There's also nothing wrong with the way SAP is reporting this information, showcasing HANA's revenue numbers and growth, while not offering the same level of detail for every other product. All companies do that.
SAP absolutely denies Goldmacher's analysis. The company says that half of its deals are "stand-alone" deals, meaning its "the primary product they are purchasing and it's not a larger mixed," a SAP spokesperson told Business Insider. "We think his report could not be more inaccurate in its assumptions."
So Morgan Stanley's Wood jumped in today with a research note. He wrote that all companies use "growth" numbers as a marketing ploy and warned that if SAP gets too beat-up for doing it, it may decide to stop disclosing important sales info.
"If you exclude stuff that has been growing very fast at SAP like HANA and Mobile then the rest won't be growing as fast. Think you can do this type of analysis for any company - and if SAP's overall growth rate was poor it might be useful. But SAP's overall growth rate is good (~10-%), and much better than its main peer. ... In terms of numbers he's saying that ex[cluding] HANA, growth would be 2%, we make that 5% actually, although if you ex[clude] Mobile and HANA it would be 2% ...
Goldmacher stands by his analysis and says investors need to understand how companies justify big marketing claims.
"SAP is going to great lengths to say look how good this business is going," said Goldmacher, "They are putting themselves in a very strange position. They want to talk about how great the tires are on the car they just wrapped around a tree. So because they want to create the impression that 10% of their business is really, really awesome, we can mathematically deduce that other 90% of the business is growing slower than the market growth rate, which means they are losing share."
The upshot is: Hana is most definitely a popular product that is doing well. HANA's 2011 full year revenue: €160 million, 2012 full year: €392 million, SAP says.
As for "fastest growing software product in the history of the world," it might be wise to take that with a grain of salt.