SAP Extends Support for SAP Business Suite 7

In conjunction with an announcement committing to maintenance support for SAP S/4HANA until the end of 2040, SAP also indicated that mainstream maintenance will be provided for core applications of SAP Business Suite 7 until the end of 2027 with extended maintenance available until the end of 2030. For context, SAP S/4HANA represents the company’s next-generation ERP platform, and customers running SAP Business Suite 7 were previously informed that the platform would reach end of life in 2025. In effect, SAP’s customers must ultimately migrate to the new platform or seek out an alternative. Thus far, SAP S/4HANA has over 13,800 customers, including 2,300 S/4HANA cloud customers. Of note, SAP recently indicated that 70% of its ERP customers have yet to adopt its cloud solutions. With a customer base that numbers in the hundreds of thousands, the timing of any forced move to the SAP S/4HANA platform has significant implications, not only for SAP but also for those hoping to displace affected customers.

As it relates to QAD (QADA), the delayed sunsetting of SAP Business Suite 7 should neither affect the current pace of adoption of its own next-generation platform, QAD Adaptive ERP, nor management’s aspirations to boost subscription revenue growth back over 30%, in our opinion. After all, adoption of cloud ERP solutions remains in the early innings, and customers on legacy platforms may still need to embrace digital transformation sooner rather than later given rapid shifts in the global economy. Of course, an external catalyst à la the end of life for SAP Business Suite 7 in 2025 could have accelerated growth further in the coming years, so the announcement is disappointing in that regard. That said, we maintain our prior estimates and $51.00 price target, which represents a FY ’21 EV/Sales multiple of 3x.

Our report with model and disclosure is available here.