ASUG reports quar­ter­ly on SAP’s finan­cial results; gain insights now into the com­pa­ny’s Q1 and Q2 2024 results, in addi­tion to its Q1 2025 results.

SAP announced third-quar­ter finan­cial results for 2024 that exceed­ed Wall Street’s expec­ta­tions, with CEO Chris­t­ian Klein cit­ing ​“anoth­er strong quar­ter,” dri­ven by cloud rev­enue growth and progress on busi­ness AI ini­tia­tives, as suf­fi­cient ratio­nale for the com­pa­ny to bol­ster its full-year guidance.

In rais­ing its 2024 out­look, SAP adjust­ed its antic­i­pat­ed oper­at­ing prof­it to between €7.8 bil­lion and €8 bil­lion, also con­firm­ing that it is on track to meet its revised 2025 finan­cial ambi­tions announced last quar­ter.

Assess­ing the third-quar­ter per­for­mance, SAP lead­er­ship report­ed €8.5 bil­lion (or U.S. $9.2 bil­lion) in total rev­enue, up 10%, and €4.4 bil­lion ($4.6 bil­lion) in cloud rev­enue, up 27%, with cur­rent cloud back­log grow­ing by 29%, to €15.4 bil­lion ($16.6 bil­lion). Oper­at­ing prof­it rose to €2.24 bil­lion ($2.4 bil­lion), mark­ing a 28% year-over-year increase.

Accord­ing to Klein, key growth dri­vers for SAP this quar­ter includ­ed its ini­tia­tive to move large-enter­prise installed-base cus­tomers to the cloud, reflect­ed by accel­er­at­ing cloud ERP suite rev­enue growth, as well as recent Busi­ness AI inno­va­tions such as Joule and SAP Knowl­edge Graph. 

“Our AI strat­e­gy plays a key role across our Cloud ERP suite,” Klein told investors dur­ing the earn­ings call, not­ing 30% of cloud deals closed this quar­ter includ­ed AI use cas­es. ​“All the hard work to dri­ve SAP’s cloud trans­for­ma­tion over the last four years has led to a high­ly resilient as well as inno­v­a­tive com­pa­ny and offers us a strong foun­da­tion for many suc­cess­ful years to come.”

Key take­aways from the Oct. 21 earn­ings call, investor tele­con­fer­ence, and Wall Street’s reaction:

• SAP’s Q3 cloud momen­tum includ­ed a sub­stan­tial 27% rise in cloud rev­enue, dri­ven by a 36% increase in cloud ERP suite rev­enue, as well as a 29% increase in cur­rent cloud back­log, its fastest growth on record.
• SAP’s Q2 cloud momen­tum includ­ed a sub­stan­tial 27% rise in cloud rev­enue, dri­ven by a 33% increase in cloud ERP suite rev­enue, as well as a 29% increase in cur­rent cloud back­log, its fastest growth on record.
• SAP’s total rev­enue for the quar­ter was €8.5 bil­lion, up 10%, dri­ven by the sus­tained strength of the cloud ERP suite despite ongo­ing com­plex­i­ties in the macro­eco­nom­ic environment.
• SAP’s oper­at­ing prof­it grew by 28% to €2.24 bil­lion, exceed­ing expec­ta­tions, helped by cost-cut­ting mea­sures and rel­a­tive­ly few new hires.
• SAP raised its full-year tar­gets based on the strength of its cloud busi­ness in the third quar­ter, adjust­ing its full-year cloud and soft­ware rev­enue tar­get range to €29.5 – 29.8 bil­lion (from €29 – 29.5 bil­lion) and pro­ject­ing oper­at­ing prof­it between €7.8 bil­lion and €8 bil­lion (up from pri­or guid­ance of €7.6 bil­lion to €7.9 billion).
• SAP com­plet­ed its acqui­si­tion of WalkMe, a dig­i­tal adop­tion plat­form com­pa­ny, last month.
• For the third quar­ter of 2024, SAP report­ed adjust­ed earn­ings of €1.23 per share on rev­enue of €8.47 bil­lion, beat­ing con­sen­sus esti­mates of €1.06 per share and €8.63 billion,
• Fol­low­ing the pub­li­ca­tion of SAP’s finan­cial results, shares of SAP SE rose around 5% in pre­mar­ket trad­ing last Tues­day, to an all-time high of €221 ($239.21); ana­lysts saw Q3 as a strong quar­ter for SAP, buoyed by increas­ing cloud ERP suite rev­enue and cur­rent cloud back­log growth.

Inside the Finan­cial Results

SAP con­tin­ues to push its on-premis­es ERP cus­tomer base to migrate to the cloud via its mod­ern­ized SAP S/4HANA suite, ahead of on-premis­es sys­tem sup­port dead­lines that start to take effect next year. 

No spe­cif­ic adop­tion num­bers were dis­closed on the earn­ings call, as in past quar­ters, but Klein stat­ed that one fourth of cus­tomers have start­ed their trans­for­ma­tion jour­ney to SAP S/4HANA — whether through RISE, GROW, or anoth­er route — reflect­ing that a sig­nif­i­cant pro­por­tion of exist­ing SAP cus­tomers have still to tran­si­tion from SAP ECC, SAP Busi­ness Suite, and SAP R/3 deployment.

On the earn­ings call, both Klein and Dominik Asam, CFO at SAP, focused on dis­cussing the ben­e­fits of RISE, which is intend­ed to help SAP cus­tomers imple­ment cloud ERP solu­tions in align­ment with best prac­tices. Ear­li­er this year, build­ing upon last fall’s announce­ment of the RISE with SAP Migra­tion and Mod­ern­iza­tion pro­gram, SAP announced updates for RISE, includ­ing a new cus­tomer onboard­ing expe­ri­ence and ​“clean core” qual­i­ty checks through­out project imple­men­ta­tion phases. 

RISE is final­ly ​“the kind of method­ol­o­gy offer­ing I always aspired for it to be,” Klein said dur­ing a sub­se­quent ana­lyst Q&A ses­sion, dis­cussing how best prac­tices for cloud ERP deploy­ment can help cus­tomers sim­pli­fy their busi­ness process­es, dif­fer­en­ti­ate with AI, and iden­ti­fy high-pres­sure busi­ness areas to sched­ule and struc­ture busi­ness process opti­miza­tion initiatives.

“Of course, there is an end of main­te­nance,” Klein said. ​“But clear­ly, clear­ly, clear­ly, it’s the val­ue and the need to trans­form is clear­ly the num­ber one dri­ver for our cloud growth.”

Simul­ta­ne­ous­ly, a com­pa­ny-wide restruc­tur­ing pro­gram is under­way at SAP; expect­ed to impact between 9,000 and 10,000 posi­tions and con­clude ear­ly next year, the pro­gram will large­ly encom­pass vol­un­tary leave pro­grams and inter­nal re-skilling mea­sures, accord­ing to Asam. Over­all expens­es asso­ci­at­ed with the pro­gram are esti­mat­ed to be around €3 billion. 

Giv­en the recent acqui­si­tion of WalkMe, as well as rein­vest­ment into strate­gic growth areas with­in the com­pa­ny, SAP now antic­i­pates end­ing the year at a slight­ly high­er head­count than last year, though that fig­ure reflects ​“a few thou­sand col­leagues who will leave the com­pa­ny as part of the trans­for­ma­tion pro­gram on Jan­u­ary 1, 2025,” Asam told investors.

Ear­li­er this year, SAP also announced enhance­ments for RISE cus­tomers mov­ing to SAP S/4HANA Cloud, pri­vate edi­tion, via pre­mi­um and pre­mi­um-plus tiers pro­vid­ing access to AI capa­bil­i­ties via Joule, as well as access to SAP Busi­ness Tech­nol­o­gy Plat­form (BTP), SAP Data­s­phere, and SAP Busi­ness Net­work capabilities. 

Joule was pre­vi­ous­ly only avail­able to pre­mi­um-plus tier cus­tomers, but SAP sub­se­quent­ly announced that all RISE and GROW cus­tomers will have access to Joule, via SAP AI units; the gen­er­a­tive-AI copi­lot remains unavail­able to those not lever­ag­ing either trans­for­ma­tion-as-a-ser­vice offering. 

Super­charg­ing Joule and Busi­ness AI

Klein also touched upon announce­ments made at SAP TechEd, reit­er­at­ing that Joule, the gen­er­a­tive-AI copi­lot SAP launched last year, will be equipped with col­lab­o­ra­tive AI agents to tack­le more com­plex busi­ness tasks and a knowl­edge-graph solu­tion to ground its AI tech­nol­o­gy in SAP-spe­cif­ic busi­ness semantics.

“Most AI chain instances are fit to per­form only one type of task in sales, in HR, in sup­ply chain,” Klein said on the earn­ings call. ​“How­ev­er, many key process­es cut across depart­ments. Finan­cial pre­dic­tions, for instance, involve data from sales, sup­ply chain man­age­ment, HR and oth­er func­tions. Joule will soon be able to orches­trate sev­er­al AI agents to car­ry out such com­plex process­es end-to-end. That’s pos­si­ble, because SAP speaks the lan­guage of all cor­po­rate func­tions. We are not trapped in one silo.”

Klein stat­ed that ​“sev­er­al hun­dred cus­tomers licensed Joule” in the third quar­ter, dur­ing which time SAP achieved its goal to embed over 100 AI use cas­es across SAP solu­tions and added ​“over 500 skills to Joule,” putting the com­pa­ny ​“well on track to cov­er 80% of [SAP cus­tomers’] most fre­quent busi­ness and ana­lyt­i­cal trans­ac­tions [via Joule] by the end of this year.” 

Call­ing the recent­ly announced knowl­edge graph engine for SAP HANA Cloud ​“a real game-chang­er in our indus­try,” Klein explained that the engine ​“cap­tures decades of busi­ness process knowl­edge and allows gen­er­a­tive AI to deeply under­stand SAP sys­tems with regard to struc­tured data, the tables, the con­nec­tions; that in turn enables gen­er­a­tive AI to pro­vide much more rel­e­vant, reli­able and con­text-sen­si­tive answers.” 

Expert Ana­lysts Offer Perspective 

In the SAP ana­lyst com­mu­ni­ty, the Q3 2024 finan­cial results were seen as strong, though ques­tions remain around the company’s abil­i­ty to con­tin­ue dri­ving remain­ing on-premis­es cus­tomers to cloud ERP solu­tions ahead of main­stream-main­te­nance dead­lines that begin to take effect next year, as well as the lim­it­ed avail­abil­i­ty of busi­ness AI to cus­tomers not select­ing RISE or GROW for cloud migrations.

It was ​“clear­ly a great quar­ter for SAP, with strong growth in cloud rev­enue, a key met­ric for Wall Street,” stat­ed Joshua Green­baum, Prin­ci­pal at Enter­prise Appli­ca­tions Con­sult­ing, a sen­ti­ment shared by Jonathan Reed, Co-Founder at Diginomica. 

“It is very hard to argue against what SAP is doing when its cloud rev­enue is now more than half the total earn­ings, and the cloud sales back­log is up 25 per­cent,” Reed told ASUG. With that in mind, he added, SAP needs to focus on upgrad­ing cus­tomers run­ning old­er ver­sions of SAP S/4HANA onto the lat­est ver­sions — even those unwill­ing to lever­age RISE in mov­ing to SAP S/4HANA Cloud, pri­vate edition. 

“Not every cus­tomer is per­suad­ed by the RISE busi­ness case, though SAP has bol­stered RISE with more robust trans­for­ma­tion ser­vices and add-on offer­ings,” Reed said. ​“I am watch­ing to see how fast GROW — for mov­ing to SAP S/4HANA Cloud, pub­lic edi­tion — matures, as I see that as SAP’s most com­pelling long term cloud ERP play.”

Accord­ing to Fabio Di Capua, VP Ana­lyst, Appli­ca­tion Ser­vices at Gart­ner, Klein’s admis­sion that only a quar­ter of installed-base cus­tomers have start­ed SAP S/4HANA trans­for­ma­tion jour­neys is indica­tive of sig­nif­i­cant chal­lenges fac­ing these lega­cy SAP users. ​“With 2027 and 2030 rapid­ly approach­ing, this is not a great sig­nal, as con­firmed by the resilien­cy of soft­ware license and main­te­nance rev­enues, with lega­cy ECC clients still strug­gling to cre­ate the busi­ness case for the migra­tion,” he said.

“At the same time,” he added, ​“clients that are already advanced in their cloud use, with native engage­ment with the major hyper­scalers, are find­ing chal­lenges in accept­ing the RISE com­mer­cial offer­ing, due to a lack of com­pa­ra­ble func­tion­al­i­ty, such as cloud elas­tic­i­ty, to what they already have today.”

Di Capua fur­ther not­ed that SAP mak­ing gen­er­a­tive-AI capa­bil­i­ties avail­able to pre­mi­um-tier RISE cus­tomers, as opposed to its pre­vi­ous stance of offer­ing these capa­bil­i­ties for pre­mi­um-plus tier RISE cus­tomers only, is ​“a sign that few clients were will­ing to invest addi­tion­al mon­ey for the func­tion­al­i­ty,” sug­gest­ing the need for SAP to fur­ther prove the imme­di­ate busi­ness val­ue of its AI embrace to its cus­tomer base. 

“SAP also con­tin­ued to push its AI gains, stat­ing that 30% of its cloud deals in Q3 had some AI com­po­nent, though, unlike pre­vi­ous quar­ters, SAP did not spec­i­fy which prod­ucts or ver­sions of AI were the main con­trib­u­tors,” Green­baum noted.

“I believe SAP is being reward­ed by Wall Street for its AI strat­e­gy, at least par­tial­ly on the rich­ness of its inter­nal (and ​“opt-in” cus­tomer) data to pow­er its AI offer­ings,” Reed added. ​“But, if SAP doesn’t con­tin­ue to show progress in deliv­er­ing adop­tion and rev­enues on this, investors may push back.

“This is not just an SAP issue,” he added. ​“Many of SAP’s largest com­peti­tors are in a sim­i­lar posi­tion, with strong val­u­a­tions in part reward­ed for still-matur­ing gen­er­a­tive AI offer­ings and out­look — and ques­tions about whether prod­ucts like copi­lots will offer deep busi­ness val­ue and prof­itabil­i­ty ver­sus their costs.”