Calling 2022’s second-quarter performance “strong,” SAP leadership reported €7.517 billion in overall revenue, up 13%, and €3.056 billion in cloud revenue, up 34%, making cloud the leading revenue source for the first time.
Additional data points for the quarter ended June 30 included: total cloud and software revenue of €6.459 billion; €10.403 billion in current cloud backlog, up 34%; SAP S/4HANA revenue of €472 million, an 84% increase; and S/4HANA current cloud backlog at €2.258 billion for a 100% jump.
While SAP reported some positive profit numbers, such as a 39% increase in cloud gross profit, overall operating profits declined. SAP International Financial Reporting Standard (IFRS) operating profit was down 32%, to €673 million, and its non-IFRS profit was down 13%, to €1.68 billion. In published remarks, the company attributed the decreases to “reduced contribution from software licenses revenue” and “significant bad debt expenses related to the war in Ukraine.” Earlier this year, SAP announced its complete exit from business in Russia,
Integration Focus
During the financial report session, Christian Klein, SAP CEO, said, “Customers are choosing us for the power of our integrated portfolio. First, core ERP; second, the SAP business technology platform (BTP); and third, our best-in-class solutions. Our strategy is focused on investing in and capitalizing on the integration of these assets.”
He noted BTP’s run rate exceeds €1.4 billion, with more than 14,000 on the platform, and “around” 20,000 customers on S/4HANA; and for S/4HANA Cloud “approximately” 6,000 customers and over 600 wins in Q2. Further, he cited improved performance in the company’s Intelligent Spend and Business Networks, Signavio, and Customer Experience portfolios, and in its sustainability solutions “given the energy crisis.”
Looking ahead, Klein said the company anticipates continued momentum behind a Capital-Expense-to-Operating-Expense spend shift and the “faster than expected” shift to cloud, including RISE with SAP adoption.
Echoing Klein’s positive yet measured remarks on the overall “strong” and “good” quarter, Luca Mucic, CFO, noted the “particularly strong performance” of cloud transitions among U.S. customers; solid pipeline-to-closed sales across the Americas; and plans to increase SAP investment in next-generation cloud delivery platform.
Mucic also described SAP progress as a sustainability “enabler and exemplar.” He cited innovations in the SAP Cloud for Sustainable enterprise, the previously announced Taulia-EcoVadis partnership, and a 28.8% increase for women in SAP management roles.
Expert Analysts’ Observations
Duncan Jones, VP and Principal Analyst at Forrester, continued his commentary focused on the SAP core product portfolio strength.
“It will be good news for SAP customers if SAP rationalizes its portfolio and focuses on its HANA and S4/HANA opportunities,” Jones said, adding that the “weak € means SAP can afford to discount more, and tough trading conditions means that sales teams will be very keen to get deals”
Joshua Greenbaum, Principal at Enterprise Applications Consulting, also characterized the period as “a good quarter, considering SAP was facing the impact of its withdrawal from the Russia market and the looming recession.” He predicted continued momentum, given “the ability of SAP to offer a number of solutions that can help ROI and productivity in recessionary times.”
He called the cloud revenue milestone “a major inflection point,” adding “the ability of RISE with SAP to generate add-on sales is also important: the kinds of digital transformation that RISE is designed for require on-going innovation, not just one-off projects.”
Greenbaum was curious about the BTP results, given that “a lot of those sales were for individual components of BTP and not necessarily reflective of the success of BTP as a bundled set of tools. SAP still has a lot of work to do to make the BTP brand and its value well-understood by its customers.”
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, also noted the SAP report of 40% BTP growth among the “powerful set of numbers of Q2.” In the cloud arena, Evans said, “SAP has a good chance to grow faster than Google Cloud and Oracle,” having come on particularly strong in the last year.
And Fabio Di Capua, Gartner VP and Analyst, Tech Product Manager, noted that the Q2 results of more than 650 new SAP S/4HANA sales bringing the total S/4HANA sales close to 20,000 and made for the best second-quarter performance since the S/4HANA introduction.
Yet, he added, “The road to the end of ECC support in 2027/2030 continues to be complicated, as existing customers are struggling to define the business case for migration to S/4HANA and the move from perpetual licenses to subscription. Gartner estimates around 16,000 existing SAP customers still need to acquire and implement S/4HANA.”