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Subprime Worries Dampen Stock Market Spirits

Worldwide, the buoyant economy in the first half of 2007 put the stock markets in cheerful to exuberant spirits. However, the ructions following the U.S. subprime crisis midyear brought gloom everywhere. Commodity prices remained high, thoughts turned to recession in the United States, and the euro grew ever stronger: There was little to encourage optimism. Nonetheless, some markets in some places at least overcame the very worst. In many places, the trend was up again in the third and fourth quarters of 2007.

Shares in Germany put on an especially brave face: At the end of the year, the DAX checked out at 8,067. That was a 22.3% gain over the full year – the best performance by a European broad-base index. But it was still down on its 2007 peak of 8,152, reached on July 13. The Dow Jones EURO STOXX 50^® index did less well, gaining just under 7% in 2007, while the Dow Jones STOXX 50^® barely held its own, ending 0.4% down on the year. In New York, the Dow Jones Industrial Average gained 6%, but in Tokyo the Nikkei declined 11% in 2007. Leading international technology and telecommunications stocks tended to do well in comparison, reflected in a 16.9% increase in the GSTI Software Index over the year.

SAP Stock Falls Almost 12% 

SAP stock could not keep up with the impressive DAX in 2007, ending on €35.53, or 11.75% below its €40.26 opening price for the year. It peaked at €42.27 at the beginning of the year, but the 2006 fourth-quarter preliminary results published in early January fell short of SAP’s ambitious expectations. Our announcement that we planned to increase investment to build up a new business for our SAP Business ByDesign midmarket solution also weighed down the share price. Consequently, SAP stock declined to €33.37 by the end of March 2007.

Good news about SAP’s business helped market sentiment improve again, and the stock closely followed the DAX until mid-September, when it reached €41.76. Then our announcement that we intended to buy French software maker Business Objects turned the tide again. Against a backdrop of an unchanged outlook for 2007, investors’ fears about integration risks and possibly a fall in profitability pushed the stock into sustained retreat until late November 2007. Matters did not begin to look – slightly – better until December.

The total volume of SAP stock trades on the Frankfurt Xetra exchange was just below €90 billion in 2007, and the daily average was about €357 million. On the New York Stock Exchange, SAP American Depositary Receipts (ADRs) fared better than the stock in Europe. The price of the ADR tends to follow the European SAP stock price closely, and relative strength of the euro against the U.S. dollar – it gained almost 12% during the course of 2007 – mitigated the decline in the ADR price, which ended the year only 3.9% down at US$51.05. The market capitalization of SAP (the share price times the number of shares outstanding) declined to €44.3 billion at year-end in 2007 (2006: €51.0 billion).

Key Facts About SAP Stock/SAP ADRs 

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