SAP lead­er­ship announced fourth-quar­ter and full-year finan­cial results for 2023, with CEO Chris­t­ian Klein telling investors that ​“SAP has deliv­ered” amid strong cloud growth and high­er total rev­enue, meet­ing or exceed­ing its annu­al out­look in all key metrics. 

Assess­ing the fourth-quar­ter per­for­mance, SAP lead­er­ship report­ed €8.468 bil­lion in total rev­enue (up 5%) and €3.7 bil­lion in cloud rev­enue (up 20%). ​“Q4 pro­vid­ed an excep­tion­al­ly strong fin­ish to 2023,” Klein said. The full year saw €31.21 bil­lion in total rev­enue (up 6%) and €13.64 bil­lion in cloud rev­enue (up 20%); cur­rent cloud back­log stands at €13.7 bil­lion (up 25%), assessed by Klein as ​“an all-time high” for SAP. 

As the Ger­man busi­ness soft­ware mak­er rein­forces invest­ments in busi­ness-relat­ed arti­fi­cial intel­li­gence, SAP also announced a €2 bil­lion restruc­tur­ing pro­gram impact­ing 8,000 posi­tions across its orga­ni­za­tion in 2024; inter­nal reskilling and vol­un­tary buy­out pro­grams will account for most changes. SAP had about 108,000 full-time employ­ees at the end of 2023. The com­pa­ny expects to main­tain its cur­rent head­count lev­els by the end of 2024. 

“SAP is open­ing the next chap­ter,” Klein said. ​“With the planned trans­for­ma­tion pro­gram, we are inten­si­fy­ing the shift of invest­ments to strate­gic growth areas, above all Busi­ness AI.” 

Key take­aways from the Jan. 24 earn­ings call, investor tele­con­fer­ence, and Wall Street’s reaction: 

• SAP’s Q4 cloud momen­tum includ­ed a 25% increase in cur­rent cloud back­log and a 20% rise in cloud revenue. 
• More than 700 cus­tomers have signed up for GROW with SAP since its launch in March 2023. 
• More than 50% of new RISE and GROW cus­tomers cur­rent­ly select the pre­mi­um edi­tions of these pro­grams intro­duced in Sep­tem­ber 2023, accord­ing to Klein. 
• SAP’s top 1,000 SAP cus­tomers report­ed­ly used an aver­age of four SAP solu­tions in 2023 (up from three in 2022), and the top 100 cus­tomers lever­age an aver­age of five solu­tions (an increase from four in 2022). 
• Cloud rev­enue is expect­ed to increase 24 – 27% in 2024, giv­en its growth in 2023; the company’s 2024 out­look projects cloud rev­enue between €17 and 17.3 bil­lion and fur­ther growth in non-IFRS oper­at­ing profit. 
• SAP announced plans to invest near­ly €1 bil­lion in AI use cas­es for customers. 
• SAP updat­ed its 2025 ambi­tion, with a non-IFRS oper­at­ing prof­it ambi­tion of €10 bil­lion, reflect­ing share-based com­pen­sa­tion expens­es of approx­i­mate­ly €2 bil­lion as well as an increase of €0.5 bil­lion due to antic­i­pat­ed incre­men­tal effi­cien­cy gains from the restruc­tur­ing program. 
• Fol­low­ing the pub­li­ca­tion of SAP’s finan­cial results, shares of SAP SE jumped more than 7%, to an all-time high.

Finan­cial Results

For the fourth quar­ter, SAP report­ed a 25% increase in its cur­rent clock back­log (27% at con­stant cur­ren­cies), total­ing €13.7 bil­lion, and a 20% increase in cloud rev­enue (or 25% at con­stant cur­ren­cies), total­ing €3.7 bil­lion, dri­ven pri­mar­i­ly by growth of its com­bined SaaS and PaaS port­fo­lio, up 22% (or 28% at con­stant cur­ren­cies). Klein not­ed this was ​“high­er growth than ever before” and evi­dence of SAP’s shift into the accel­er­a­tion phase of its strate­gic cloud trans­for­ma­tion. SAP S/4HANA Cloud rev­enue was up 55% at €1.03 bil­lion (61% at con­stant currencies). 

For the full year, SAP report­ed a 20% increase in cloud rev­enue to €13.7 bil­lion (up 23% at con­stant cur­ren­cies), along with a 37% increase in total cloud back­log to €44 bil­lion (up 39% at con­stant cur­ren­cies). SAP updat­ed its 2024 and 2025 out­looks, as the com­pa­ny antic­i­pates ​“strong growth in cloud rev­enue and non-IFRS oper­at­ing prof­it,” accord­ing to Klein. Fore­cast­ing total cloud rev­enue of €17.3 bil­lion for 2024 (up from €17 bil­lion) and an implied growth rate of 25.5% (at con­stant cur­ren­cies) by the fis­cal year’s mid­point, SAP is now set up to deliv­er cloud rev­enue (non-IFRS) total­ing €21.5 bil­lion in 2025. 

SAP report­ed oper­at­ing prof­it of €9.05 bil­lion (non-IFRS, at con­stant cur­ren­cies) and cash flow of €5.08 bil­lion, both exceed­ing its 2023 out­look for the fis­cal year (as revised in Octo­ber). Soft­ware licens­es rev­enue was down 14% to €1.77 bil­lion (down 12% at con­stant cur­ren­cies), while cloud and soft­ware rev­enue increased by 6% to €26.93 bil­lion (up 9% at con­stant cur­ren­cies). Ser­vices rev­enue was up 4% to €4.28 bil­lion (up 6% at con­stant currencies). 

“We kept our promise and achieved dou­ble-dig­it non-IFRS oper­at­ing prof­it growth, despite an adverse macro envi­ron­ment,” said SAP Chief Finan­cial Offi­cer Dominik Asam, call­ing 2023 ​“a year of inflec­tion” and vow­ing to fur­ther increase prof­itabil­i­ty in 2024. The company’s full quar­ter­ly and full-year state­ment can be accessed on SAP’s web­site.

Busi­ness AI

SAP’s ambi­tions to lead in busi­ness-relat­ed arti­fi­cial intel­li­gence took cen­ter stage dur­ing the earn­ings call. 

“With sig­nif­i­cant busi­ness momen­tum, includ­ing in Q4, SAP is stronger and more rel­e­vant than ever as we enter the era of Busi­ness AI,” Klein said, cit­ing the speed at which the tech indus­try is shift­ing to embrace AI as one moti­va­tion for the announced restruc­tur­ing program. 

“With these shifts, SAP has a clear new direc­tion, with plans to spend approx­i­mate­ly €1 bil­lion ​“to devel­op pow­er AI use cas­es for our cus­tomers,” Klein said. Part­ners will play a cen­tral part in this trans­for­ma­tion, he added, specif­i­cal­ly not­ing SAP’s efforts to bring gen­er­a­tive-AI capa­bil­i­ties to its RISE with SAP pro­gram through a part­ner­ship with NVIDIA. Align­ing resources to focus on AI, Klein declared, was indica­tive of his ambi­tion to make SAP not only ​“the top enter­prise appli­ca­tion com­pa­ny” but ​“the no. 1 busi­ness AI com­pa­ny” as well. 

Klein also touched on his time at the recent World Eco­nom­ic Forum in Davos, where he spoke at length with oth­er world and busi­ness lead­ers about the poten­tial of AI. ​“SAP will com­plete­ly embed AI in our solu­tions,” he said. ​“We will make it read­i­ly avail­able for end users and con­nect it with all busi­ness process­es. This will tremen­dous­ly boost the capa­bil­i­ties of our solu­tions. It will also fun­da­men­tal­ly change how users inter­act with our systems.” 

Analy­sis from Indus­try Experts

In the ana­lyst com­mu­ni­ty, SAP’s Q4 and full-year 2023 finan­cial results were pos­i­tive­ly received as indica­tive of the company’s con­tin­ued cloud momen­tum, though its recent AI empha­sis was met with healthy skepticism. 

Accord­ing to Joshua Green­baum, Prin­ci­pal at Enter­prise Appli­ca­tions Con­sult­ing (EAC), ​“SAP clear­ly turned in a quar­ter that met Wall Street’s expec­ta­tions, and the stock price soared to an all-time high, out­pac­ing many of its peers.” 

Green­baum attrib­uted the new stock price to SAP’s renewed focus on AI, as well as the restruc­tur­ing around this focus, but expressed reser­va­tions about Klein’s vow to investors that SAP’s AI tools will ​“solve some of the hard­est prob­lems” its cus­tomers face. ​“This is an excel­lent aspi­ra­tion, but it also poten­tial­ly sets SAP cus­tomers up for dis­ap­point­ment,” he said. 

“It’s a giv­en that solv­ing the ​‘hard­est prob­lems’ using AI will take time, par­tic­u­lar­ly when it comes to new func­tion­al­i­ty based on gen­er­a­tive AI,” Green­baum added. ​“I’m gen­uine­ly con­cerned that SAP and the cus­tomer base will direct too much atten­tion toward nascent and future AI offer­ings this year, instead of focus­ing on solv­ing the hard prob­lems [Klein] men­tioned by start­ing with the basics, such as data man­age­ment and process inte­gra­tion, not to men­tion SAP S/4HANA migration.” 

Fabio Di Capua, VP Ana­lyst and Tech Prod­uct Man­ag­er at Gart­ner, said the results SAP pre­sent­ed show that the com­pa­ny is in sol­id finan­cial con­di­tion. How­ev­er, while SAP focused on its cloud and AI offer­ings dur­ing the earn­ings call, Di Capua point­ed out that a sig­nif­i­cant por­tion of SAP rev­enue came from oth­er streams. 

“In 2023, SAP obtained about half of its rev­enues (exclud­ing ser­vices) from soft­ware license and soft­ware sup­port,” Di Capua said. ​“Still, a con­sid­er­able amount of busi­ness is fueled by the more than 23,000 cus­tomers stick­ing on the lega­cy SAP ERP Cen­tral Com­po­nent (ECC) sys­tem and 16,000 SAP S/4HANA clients that bought before 2021, when RISE with SAP was launched, accord­ing to Gart­ner estimates.” 

Despite SAP’s focus on tak­ing its cus­tomers to the cloud, the notion of ​“cloud­i­fi­ca­tion” remains ​“a very com­plex activ­i­ty, clash­ing with clients that are not will­ing to reg­u­lar­ly update their sys­tems,” Di Capua said, fur­ther stat­ing that lega­cy SAP ECC clients are ​“strug­gling to find the busi­ness case to migra­tion.” Gart­ner esti­mates more than 70% of SAP S/4HANA cus­tomers will be out of main­stream main­te­nance by the end of next year. Di Capua pre­dict­ed that ​“2024 may see fur­ther resilience” of SAP’s on-premis­es busi­ness, owing to SAP’s increase of main­te­nance costs and lim­it­ed dis­counts on software. 

The suc­cess of SAP’s sus­tain­abil­i­ty efforts (includ­ing the debut of SAP Sus­tain­abil­i­ty Data Exchange and Green­To­ken) along with the growth of its RISE and GROW pro­grams were not­ed by ana­lysts as high­lights of the quar­ter. ​“Approx­i­mate­ly 1000 cus­tomers have deployed SAP Cloud for Sus­tain­able Enter­pris­es, GROW was report­ed to have already signed up 700 cus­tomers, and RISE was tout­ed as an impor­tant engine for net-new cus­tomer growth,” Green­baum said. 

SAP cus­tomers remain hes­i­tant to dive into AI tech­nol­o­gy before ful­ly under­stand­ing how it can be applied to their busi­ness oper­a­tions, Di Capua added. ​“All the hype, invest­ments, and expec­ta­tions around gen­er­a­tive AI is con­vinc­ing many cus­tomers to just sit and wait to see the real impact of the tech­nol­o­gy, both on the soft­ware side and the imple­men­ta­tion and sup­port side.” 

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