German technology giant SAP has reported strong third-quarter earnings and raised full-year forecasts for key metrics including cloud computing and software revenue, operating profit and free cash flow.
Despite a weak German economy, the software company has thrived thanks to a strategic focus on artificial intelligence. SAP American Depositary Receipts (ADRs) were up 3.5% in afternoon trading on the New York Stock Exchange, pointing to a possible higher open in Frankfurt.
SAP remains one of the European market leaders, up 51% year-to-date, and its share price closed at €211 per share on Monday. Its shares have hit all-time highs several times over the past five months, driven by consistently positive earnings results.
A shift towards artificial intelligence
SAP’s cloud services revenue has grown faster since the first quarter, increasing by 20% to 30% in the first three quarters. The success of SAP’s AI-based core business is indicative of SAP’s restructuring plans and strategic changes.
In the latest statement released on Monday, CEO Christian Klein said: “We are raising our 2024 financial guidance with confidence. Cloud revenue growth was particularly impressive, particularly in our cloud ERP suite. More importantly, we’ve made significant strides in business AI with breakthrough innovations like the SAP Knowledge Graph. A significant portion of our cloud services business in Q3 involved artificial intelligence use cases.”
Since the beginning of the year, SAP has made a strategic move towards artificial intelligence, especially business AI.
“SAP will continue to increase its focus on key strategic growth areas, particularly Business AI. It also plans to transform its operating structure to gain organizational synergies, AI-driven efficiencies and prepare the company for highly scalable revenue growth in the future,” the company said in January.
As part of that strategy, Europe’s biggest software maker announced plans to cut 8,000 jobs to support its AI-driven business model, increasing that target to 9,000-10,000 cuts in July. However, the restructuring cost the company around 2.8 billion euros in the first nine months.
Cloud revenues continue to grow rapidly in the third quarter
SAP’s current cloud services volume, a key measure of revenue expected to be booked in the next 12 months, reached €15.4 billion in the third quarter, up 25%, or 29% in the prior quarter at constant currencies. This followed a 28% increase in the second quarter and a 27% increase in the first quarter.
Cloud services revenue rose 25%, or 27% in constant currencies, while total revenue rose 9.4% quarter-on-quarter to €8.47 billion, slightly beating analysts’ estimates of €8.47 billion. SAP reported earnings per share of €1.23, beating the consensus estimate of €1.22 per share.
SAP has now raised its 2024 headline forecast, forecasting cloud services and software revenue of 29.5 billion to 29.8 billion euros, an average increase of 400 million euros, or 10% to 11% annual growth in constant currencies.
The company also predicts that the operating profit will increase by 20-23% compared to the previous year, increasing the average figure by 150 million euros. Free cash flow is now forecast to reach €4.0 billion, up from €3.5 billion previously forecast.
SAP’s Bullish Quarter: A Cheeky Take on Tech Triumph
Well, well, well! If it isn’t SAP – the German tech behemoth that’s been pushing all the right buttons while the German economy plays its usual game of ‘who can be more underwhelming?’ It seems like SAP didn’t get the memo about downturns and decided to treat their investors like royalty with a hefty helping of third-quarter earnings that’ll make your accountant swoon.
Strong Earnings & Cloud Conquests
Now, I know what you’re thinking: “SAP? Aren’t they the people behind those spreadsheets that are almost as painful as tax returns?” But hold your horses! SAP has been strutting its stuff recently, showing off a remarkable 3.5% bump in their American Depositary Receipts (ADRs) in afternoon trading on the New York Stock Exchange. Fancy that! They’re clearly ready to get their disco shoes on for a bigger bash when the Frankfurt market opens.
Just to keep the numbers rolling in, their share price ticked up to €211 after a fabulous ride of a whopping 51% increase year-to-date. Talk about a solid bull run, right? Their all-time highs hit more often than your annoying colleague over-corrects your grammar!
A Shift Towards Artificial Intelligence
So what’s the secret sauce, you ask? Ah, it’s the beloved abbreviation, AI – Artificial Intelligence, my dear Watson! SAP’s cloud services revenue catapulted by 20-30% during the first three quarters thanks to its refreshing focus on business AI. Yes, you heard it correctly, they’re throwing some serious tech at the wall (and it’s sticking!) to ensure their remodel would make even the most discerning design critic blush.
In the grand words of SAP’s CEO, Christian Klein: “We’re not just raising our forecasts; we’re doing it with confidence.” You know, as if he just walked off the golf course after hitting a hole-in-one. More importantly, he reveals SAP’s dreamy cloud ERP suite and magical concoctions like the SAP Knowledge Graph; if that doesn’t sound like a spell from Hogwarts, I don’t know what does!
But hang onto your wallets, folks! SAP has also announced it will be trimming the workforce by 8,000 jobs in a strategic ‘makeover’ aimed at refining its AI-driven business model. And before you could say “restructuring,” that number had swelled to 9,000-10,000 job cuts! Any HR manager would break into an unceremonious sweat just thinking about it. The price tag? A neat *€2.8 billion* in restructuring costs. Because, of course, every good makeover needs a hefty budget!
Cloud Revenues Continue to Grow Rapidly
Looking at the numbers for the third quarter, SAP managed to reel in €15.4 billion in cloud service volumes, marking a staggering 25% increase. It’s almost as if everyone wants to get onboard the cloud train that is operating at full steam ahead – all while analysts were biting their nails, predicting mere optimistic figures. Take that, skeptics!
All said and done, SAP has raised its 2024 headline forecast, bouncing the cloud services revenue to between €29.5 billion and €29.8 billion. Don’t you love when companies toss around numbers with such ease? It’s almost like they’ve found a cheat code for business success!
In its forecasts, we hear promises of an operating profit rise of 20-23%, plus an increase in free cash flow to reach good ol’ €4.0 billion. Looks like there’s plenty of reasons to high-five SAP – from the streets of Frankfurt to the floors of Wall Street.
So there you have it, folks: while others may be losing their heads, SAP is driving full speed ahead towards a tech-infused future. Cheerio, and let’s hope their cloud doesn’t rain on our parade!
