Polen Capital Likes SAP SE (SAP) Cloud Transition Despite Slowing Growth

Polen Capital Management recently published its Q4 Investor Letter – a copy of which can be downloaded here. A return of 7.70% was recorded by the fund for the Q4 of 2020, below its MSCI All-Country World benchmark that delivered a 14.69% return. You can see the fund’s top best for 2021 in their letter.

Polen Global Growth said in their letter that SAP SE (NYSE: SAP) was one of the top detractors for the fund during the fourth quarter of 2020. SAP SE is a global software corporation that currently has a $156 billion market cap. For the past 3 months, SAP delivered a 13.48% return and settled at $132.31 per share at the closing of February 4th.

Here is what Polen Global Growth has to say about SAP SE in their investor letter:

“One of our largest detractors during the quarter was SAP. In the case of SAP, the market reacted negatively when the company decided to make a stronger push for customers to move to the cloud. Management signaled that this would require
rearchitecting code. Management also indicated that the shift from upfront revenue recognition to the ratable business model
that accompanies cloud transitions would result in little to no growth over the next two years. Management expects roughly
20% of customers to switch by next year. The impetus for the move, like many other actions businesses took this year, was the
coronavirus. COVID-19 made it clear to CEO Christian Klein that customers need the speed, agility, resiliency, and mobility that a true cloud platform provides. We met with management immediately following the announcement and respect the
strategic shift, as we believe it is the right thing for the long term. SAP remains dominant in Enterprise Resource Planning (ERP) software, which is among the stickiest of applications.”

SAP delivered a -3.26% return in the past 12 months. Our calculations show that SAP SE (NYSE: SAP) does not belong in our list of the 30 most popular stocks among hedge funds.

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