SAP lead­er­ship report­ed €7.84 bil­lion in total rev­enue (up 15%) and €3.23 bil­lion in cloud rev­enue (up 38%, declar­ing 2022’s third-quar­ter per­for­mance ​“a strong cloud quar­ter.” Cloud con­tin­ues to gain momen­tum as the lead­ing rev­enue source for SAP amid dou­ble-dig­it growth across the SaaS and PaaS portfolio.

Also promi­nent­ly fea­tured in results for the quar­ter end on Sept. 30: total cloud and soft­ware rev­enue was at €6.71 bil­lion (up 14%), cur­rent cloud back­log was at €11.2 bil­lion (up 38%), and the recent S/4HANA cloud back­log was at €2.7 bil­lion (up 38%). Mean­while, S/4HANA cloud rev­enue was at €546 mil­lion (up 98%).

“Our cloud solu­tions are the answer, as cus­tomers turn to us to help them future-proof their busi­ness­es,” said SAP CEO Chris­t­ian Klein. ​“This trust in SAP is reflect­ed in our accel­er­at­ing cloud momen­tum. With a recur­ring rev­enue share of more than 80%, it’s clear that our trans­for­ma­tion has reached an impor­tant inflec­tion point, paving the way for con­tin­ued growth in the future.”

A Bright Future

Dur­ing the finan­cial report ses­sion, Klein said that the company’s finan­cial out­look for 2022 remains on track, with cloud busi­ness dri­ving faster-than-expect­ed quar­ter­ly rev­enue growth. ​“We are see­ing accel­er­at­ing momen­tum across all our key cloud indi­ca­tors, with cloud rev­enue now rep­re­sent­ing our largest rev­enue stream for two sequen­tial quar­ters,” he said. 

Cloud momen­tum led the pos­i­tive prof­it num­bers, SAP report­ing a 44% increase in cloud gross prof­it to accom­pa­ny its 14% increase in gross prof­it. SAP Inter­na­tion­al Finan­cial Report­ing Stan­dard (IFRS) oper­at­ing prof­it was at €1.24 bil­lion (down 1%), and its non-IFRS prof­it flat at €2.09 billion.

In pub­lished remarks, the com­pa­ny attrib­uted these results to a ​“reduced con­tri­bu­tion from soft­ware licens­es rev­enue” as well as ​“accel­er­at­ed invest­ments into research and devel­op­ment and sales and mar­ket­ing.” In addi­tion, pri­or third quar­ter IFRS and non-IFRS oper­at­ing prof­it includ­ed a dis­pos­al gain of €77 mil­lion relat­ed to the launch of SAP Fioneer. 

Ear­li­er this year, SAP announced plans to exit its busi­ness in Rus­sia. The ​“damp­en­ing impact” of war in Ukraine was not­ed dur­ing the finan­cial report ses­sion. For the full year, giv­en this evolv­ing sit­u­a­tion, SAP esti­mates total rev­enue impact of €250 mil­lion at con­stant cur­ren­cies, from lack of new busi­ness and dis­con­tin­u­a­tion of exist­ing busi­ness. Cur­rent cloud back­log was par­tic­u­lar­ly impact­ed by the ter­mi­na­tion of exist­ing cloud engage­ments in Rus­sia and Belarus, decreas­ing by €64 mil­lion and reduc­ing growth by one per­cent­age point.

Busi­ness Highlights 

In dis­cussing busi­ness high­lights, Klein spoke to the strength of the company’s inte­grat­ed port­fo­lio as a con­tin­ued draw for customers. 

Call­ing it ​“the foun­da­tion for our cus­tomers’ busi­ness trans­for­ma­tion,” Klein dis­cussed the impor­tance of the SAP Busi­ness Tech­nol­o­gy Plat­form (BTP) by allow­ing cus­tomers and part­ners to inte­grate SAP and non-SAP sys­tem land­scapes, accel­er­at­ing over­all process automa­tion. ​“This leads to a pow­er­ful fly­wheel effect,” said Klein, point­ing out BTP’s €1.5 bil­lion con­tri­bu­tion to over­all cloud rev­enue growth.

RISE with SAP is dri­ving end-to-end busi­ness trans­for­ma­tion world­wide and ​“has cement­ed itself as the pre­ferred choice for cus­tomers as they move their ERP to the cloud,” Klein added; near­ly 2,500 cus­tomers are run­ning RISE in more than 100 SAP and part­ner data cen­ters around the world, a sig­nif­i­cant year-over-year take-up since RISE was intro­duced at the begin­ning of 2021. 

Klein also com­ment­ed upon RISE’s util­i­ty as a ​“great mech­a­nism for cross-sell and upsell,” with more than 80% of RISE cus­tomers decid­ing to invest in SAP BTP and more than 60% opt­ing for addi­tion­al cloud solu­tions. SAP show­cased sev­er­al brands invest­ing in RISE with SAP and SAP S/4HANA, includ­ing Pra­da, Ricoh, the BBC, and Schnei­der Electric. 

The Cen­ter for Pan­dem­ic Vac­cines and Ther­a­peu­tics (ZEPAI) at the Paul-Ehrlich-Insti­tute (PEI) in Ger­many is using BTP as its tech­ni­cal foun­da­tion, giv­en the impor­tance of data pro­tec­tion and secu­ri­ty. ​“We are proud to host a com­plete vac­ci­na­tion dis­tri­b­u­tion sys­tem in our Ger­man data cen­ter,” Klein said. 

Klein high­light­ed wins for the Intel­li­gent Spend Busi­ness Net­work port­fo­lio, buoyed by accel­er­at­ing busi­ness trav­el com­bined with an increased focus on man­ag­ing costs and Busi­ness Process Intel­li­gence wins under the SAP Sig­navio port­fo­lio mar­ket, which almost dou­bled in cloud rev­enue since Q3 2021.

“Busi­ness­es every­where are deal­ing with a com­bi­na­tion of pro­found chal­lenges, includ­ing infla­tion, labor and ener­gy short­ages, and dis­rupt­ed sup­ply chains,” Klein said. ​“Despite these chal­lenges, our results demon­strate the rel­e­vance of our strat­e­gy dur­ing these volatile times and reflect how SAP is unique­ly posi­tioned to help our cus­tomers becomes stronger for the future.” 

Look­ing For­ward

SAP cloud trans­for­ma­tion has reached a tip­ping point, Klein said, reflect­ing on the company’s path since begin­ning its jour­ney two years ago. Pre­dictable rev­enue now accounts for 80% of rev­enue, up from 72% in 2020, back at the start­ing point of the company’s cloud transformation.

“Over­all, our strong cloud momen­tum has off­set the topline impact from exit­ing Rus­sia,” said Klein. ​“On the bot­tom line, we antic­i­pate meet­ing the guid­ance we pro­vid­ed last quar­ter. We are expect­ing our largest Q4 on record.” 

Klein expressed enthu­si­asm about the SAP inno­va­tion pipeline and teased new announce­ments to come at the company’s TechEd event in November. 

“SAP North Amer­i­ca hit its stride in Q3, with a sol­id per­for­mance in the region,” said Lloyd Adams, Pres­i­dent, SAP North Amer­i­ca, said of the Q3 results in a social media post. While not­ing momen­tum dri­ven by Mid­mar­ket, SAP Con­cur, and BTP busi­ness streams, Adams point­ed to SAP S/4HANA as the quarter’s big win­ner, ​“with unprece­dent­ed year-over-year rev­enue growth adding almost 200 cus­tomers to our roster.” 

Adams added: ​“Strong cloud book­ings and renew­al rates, includ­ing a 97% renew­al rate from SAP S/4HANA Pub­lic Cloud cus­tomers in North Amer­i­ca, con­tin­ue to rein­force the val­ue our cus­tomers are see­ing from SAP.” 

Expert Ana­lysts’ Insights

In the SAP ana­lyst com­mu­ni­ty, the third-quar­ter finan­cials were pos­i­tive­ly received, though some expressed skep­ti­cism at Wall Street’s bull­ish reac­tion to the results.

Joshua Green­baum, Prin­ci­pal at Enter­prise Appli­ca­tions Con­sult­ing, not­ed that SAP shares were up by 4%, a lev­el not seen since the end of June. ​“There’s a real appetite for good news from the tech sec­tor, and SAP def­i­nite­ly deliv­ered what the Street saw as a sol­id quar­ter,” Green­baum said. ​“While I find the focus on RISE to be a dis­trac­tion for cus­tomers — the major­i­ty of whom shouldn’t be doing RISE deals due to the com­plex­i­ty of their SAP land­scapes — SAP needs Wall Street’s bless­ings, and Q3’s RISE num­bers were def­i­nite­ly solid.” 

Green­baum com­ment­ed that SAP appears to have ​“exit­ed rel­a­tive­ly grace­ful­ly” in its move­ment to end soft­ware sup­port and cloud ser­vices in Rus­sia and Belarus. SAP ​“still has some con­trac­tu­al require­ments to ful­fil, but the impact of with­draw­al from Rus­sia can’t be seen in the num­bers,” he said.

Reflect­ing on the impor­tance of cloud momen­tum to the SAP Q3 results, Green­baum said that the real inflec­tion point the com­pa­ny has reached is ​“more in the minds of Wall Street than in the minds of the cus­tomers,” who have been on board with cloud trans­for­ma­tion for some time now. ​“From a prac­ti­cal stand­point, there aren’t any on-premis­es growth oppor­tu­ni­ties for SAP; there’s sim­ply no inno­va­tion hap­pen­ing on premis­es of any note,” Green­baum added. 

Fabio Di Capua, Gart­ner VP and Ana­lyst, Tech Prod­uct Man­ag­er, not­ed that SAP did not dis­close any SAP S/4HANA or RISE with SAP sales num­bers, as Q3 is nor­mal­ly a slow quar­ter com­pared to the stronger Q4, when the SAP fis­cal year ends. ​“Over­all, SAP Q3 rev­enues showed good finan­cial num­bers, with improved oper­at­ing mar­gin,” he added.

“What was report­ed is a steady 60% net-new cus­tomer, not mov­ing the nee­dle on the exist­ing SAP Busi­ness suite cus­tomer migra­tion,” Di Capua con­tin­ued. ​“This con­firms the chal­lenges exist­ing cus­tomers have in defin­ing the busi­ness case for migra­tion to S/4HANA and the move from per­pet­u­al licens­es to subscription.”