In what SAP leadership called “another outstanding quarter,” earlier this month SAP reported 2022 first-quarter revenue of €7.08 billion, up 11%. SAP also reported a 12% increase in cloud and software revenue, to €6.06 billion, for the period that ended March 31. Cloud revenue in the Americas jumped 33%, leading all regions.
Also for the quarter, SAP noted positive key measures of incoming business. The current cloud backlog was up 28%, at €9.73 billion, and the recent SAP S/4HANA cloud backlog hit €1.92 billion. SAP also reaffirmed its 2022 forecast for cloud revenue to achieve between €11.55 billion and €11.85 billion at constant currency rates. SAP CFO Luka Mucic said that the company “absolutely, fully” expects to follow previous guidance for double-digit profit growth in 2023.
However, the overall enthusiasm was tempered in executive remarks expressing solidarity with the people of Ukraine and by the reported financial impact as the company completely shutters its Russian business operations and presence. Soon after the invasion, SAP stopped sales in Russia and Belarus, and then shut down cloud operations. SAP is now completely leaving Russia, dropping on-premise maintenance and support, in what SAP CEO Christian Klein called a “structured exit.”
Given this exit, SAP said it will experience a revenue hit of €300 million and that the war in Ukraine cut backlog growth at constant currency rates by 0.8 of a percentage point.
RISE with SAP Highlights
Among other highlights, SAP reported more than 3,400 net-new RISE with SAP customers and more than 24,400 go lives in the first quarter—nearly 80% of which adopted the SAP Business Technology Platform. Klein said that such momentum is “establishing SAP as a platform company.”
The SAP S/4HANA customer base hit 19,300 as of March 31, up 18% year over year, with 13,900 live on the system and 500 net-new customers. SAP showcased several brands on the RISE with SAP and SAP S/4HANA bandwagon, including Microsoft’s high-profile shift, along with Accenture, Citizen Watch, Daimler Truck AG, and NEC Corp., among others.
Klein also highlighted a “particularly strong quarter” for the Intelligent Spend Business Network portfolio; the return of growth for Concur given accelerating business travel; several Business Process Intelligence wins under the new SAP Signavio portfolio brand, including Moderna; and finally, the growing interest in and strategic partnerships for the SAP Cloud for Sustainability portfolio.
Cybersecurity and Supply Chain on Customers’ Minds
Discussing ongoing customer conversations, Klein said that “one of the biggest topics” across the SAP community is “cybersecurity, as we’re seeing a rising number of attacks.” Klein said that the “great success of RISE, ahead of [the] revenue plan” is, in part, based on the solution’s capability “to protect your stack, end-to-end. That is a strong value proposition.” He also said that continued supply chain challenges worldwide are “pushing more IT spend.”
In the session with financial analysts, Scott Russell, the SAP Global Head of Customer Success, highlighted products and services supporting corporate initiatives. “S/4HANA Cloud drives resiliency for all companies; RISE brings scalability and innovation,” he said, adding that SAP Business Technology Platform and SAP Signavio are also key drivers, with “all regions growing strong. Americas’ growth is particularly pleasing.”
Expert Analysts’ Insights
In the SAP analyst community, the first-quarter financials were seen as generally positive. “SAP’s Q1 results reported more than 500 new S/4HANA sales, of which more than 60% were net new. Q1 is normally not a strong quarter for SAP. However, 500 is the highest Q1 number we have seen since S/4HANA’s introduction. This is good news in terms of new customer acquisition, as is the fact that SAP is able to win competitive deals against Oracle, Microsoft, and others,” noted Fabio Di Capua, veteran SAP watcher and Gartner VP.
Likewise, Duncan Jones, VP and Principal Analyst at Forrester, remarked that the 60% net-new SAP S/4HANA deals “shows the strength of SAP’s core product.” However, he also wondered whether customers’ SAP S/4HANA transitions were keeping pace with SAP expectations.
In his #CloudWars minute last week, CloudWars founder Bob Evans, who will give a keynote address at ASUG Best Practices: SAP for Cloud in August, noted five quarters of strong RISE with SAP performance. Evans said that it is “kind of remarkable that none of the other major cloud providers has tried to emulate this or model it because it seems to be a big winner with customers.” Evans cited Klein’s message that RISE with SAP lets customers “[reimagine] and reconstruct business processes; move to agile cloud (via SAP S/4HANA); and easily adopt industry cloud” approaches, among other positives.
Meanwhile, Joshua Greenbaum, Principal at Enterprise Applications Consulting, said that three factors drew his attention in the first-quarter report. He noted that “SAP’s efforts to shift its customer base to the cloud continue to bear fruit,” with strong momentum as a “harbinger of future cloud sales.” Nonetheless, Greenbaum is concerned about “the disappointing results related to SAP’s Sapphire Ventures” investment arm, as well as “no mention at all of CX in the earnings call or report.”
“SAP needs a strong CX offering,” Greenbaum added, noting, “CX’s no-show in the quarterly report is a signal” to the CX team, including new leadership in engineering, “that there’s some heavy lifting to be done.”