Shares of SAP and Google continued their downward trek, as Wall Street weighed in Tuesday with earnings cuts.
Google's shares dropped as low as 5.6 percent in intra-day trading to $350.26 a share, following a 2008 and 2009 estimated earnings cut and lowered price target offered by Stifel Nicolaus analysts. And SAP, which saw its shares pummeled Monday after issuing a warning its third quarter was not shaping up as anticipated, suffered a further decline as analysts cut their earnings estimates.
SAP, an enterprise software behemoth, had its price target reduced to $35 a share from $45 a share by Patrick Walravens, a JMP Securities analyst. He also reduced his SAP earnings estimates to 1.81 euros ($2.47) per share from 1.90 euros ($2.59) per share for 2008, and his 2009 forecast to 2.14 euros ($2.92) from 2.18 euros ($2.97) per share.
Walravens noted in his SAP research note:
While the valuation is getting interesting, we still have several concerns. First, one industry source suggested to us that 4Q could see "a big drop" in orders compared to prior fourth quarters. We think it is important to get a read on how the 4Q business is building and how 2009 might look. Second, our due diligence suggests that 2Q and 3Q may have each included license revenue in the tens of millions from a deal with a major food company--possibly setting up a more difficult sequential comp in 4Q. Third, as we discussed last week, another industry source suggested that one of SAP's customers may have stalled a deal as it saw its own customers beginning to delay payments. This behavior may well intensify in 4Q. Last, we note that it may be more difficult for SAP to reduce expenses than might be the case for Oracle given the high concentration of SAP employees in German and Europe.
On the Google front, analyst George Askew and Reed Meyer of Stifel Nicolaus lowered their Google price target to $525 a share from $600 a share, as well as cut the earnings estimates for 2008 and 2009.
The analysts cut Google's earnings estimates to $19.37 a share from $20.20 a share for 2008, while also trimming back 2009 to $23.51 a share from $26.01 a share.
Askew and Meyer noted in their research note:
We are reducing our financial projections for Google to reflect a more cautious global economic outlook. Our belief is based on 1) the apparent sharp slowdown in business activity late in 3Q08 for companies globally as the ongoing credit crisis depressed business and consumer confidence, and 2) the negative revenue impact of foreign currency moves relative to the stronger U.S. dollar. We conservatively project the economic slowdown to continue through 2009.
Google is scheduled to report its third quarter financial results on October 16, while SAP is scheduled to report its earnings on October 28.