SAP SE delivered robust earnings and guidance largely in-line with analyst estimates for the second quarter of 2024, highlighted by strong cloud momentum and significant growth in key financial metrics.

The company’s total revenue reached €8.29 billion, reflecting a solid 10% year-over-year increase, buoyed by a strong 25% rise in cloud revenue to €4.15 billion. This growth is largely attributed to the 33% surge in Cloud ERP Suite revenue, underscoring SAP’s successful transition to cloud-based services.

Financial Performance

• Total Revenue: SAP reported total revenue of €8.29 billion, marking a 10% year-over-year increase. This growth was consistent at constant currencies.
• Cloud Revenue: Cloud revenue surged by 25% to €4.15 billion, driven primarily by a 33% increase in Cloud ERP Suite revenue, reaching €3.41 billion.
• Software Licenses Revenue: There was a 28% decline in software licenses revenue to €0.2 billion, indicating a continued shift towards cloud subscriptions.
• Cloud Backlog: The current cloud backlog increased by 28% to €14.81 billion, underscoring strong demand and future revenue visibility.
• Operating Profit: IFRS operating profit decreased by 11% to €1.22 billion due to restructuring expenses. Non-IFRS operating profit, however, increased by 33% to €1.94 billion, benefiting from disciplined execution of the 2024 transformation program.
• Earnings Per Share: IFRS earnings per share (basic) rose by 22% to €0.76, while non-IFRS earnings per share (basic) saw a 59% increase to €1.10.

Strategic Initiatives and Highlights

• Cloud and AI Integration: SAP’s cloud growth was significantly supported by the introduction of Joule, a generative AI assistant that enhances user experience by allowing natural language data queries. AI capabilities were a critical factor in closing deals, contributing to SAP’s competitive edge.
• RISE with SAP and GROW with SAP: These digital transformation initiatives continued to drive growth, with numerous new enterprise accounts and successful cloud ERP adoptions. Notably, 60% of new customers in the quarter were new to SAP.
• Restructuring Program: As part of its transformation strategy, SAP is restructuring to enhance scalability and efficiency. The program, affecting 9,000-10,000 positions primarily through voluntary measures, aims to align the company’s skillsets with future business needs. Total restructuring costs are estimated at €3 billion, with significant long-term savings anticipated.

Customer Wins and Regional Performance

SAP secured notable customer wins in Q2, including companies like ExxonMobil, Porsche, and Zoomlion. The cloud revenue performance was particularly strong in APJ and EMEA regions, with Brazil, Canada, Germany, India, Japan, and South Korea showing outstanding growth. The U.S., China, and Saudi Arabia also demonstrated strong performance.

Financial Outlook

For 2024, SAP expects:

• Cloud Revenue: €17.0-17.3 billion, up 24% to 27% at constant currencies.
• Cloud and Software Revenue: €29.0-29.5 billion, up 8% to 10% at constant currencies.
• Non-IFRS Operating Profit: €7.6-7.9 billion, up 17% to 21% at constant currencies.
• Free Cash Flow: Approximately €3.5 billion.

Strategic Partnerships and Acquisitions

• AI and Cloud Collaborations: SAP announced strategic partnerships with IBM and AWS to enhance AI capabilities and cloud solutions.
• Acquisition of WalkMe: SAP is set to acquire WalkMe Ltd., a leader in digital adoption platforms, for approximately $1.5 billion, expected to close in Q3 2024. This acquisition aims to bolster SAP’s digital transformation solutions.

Analysis

SAP’s strong Q2 performance, driven by cloud growth and strategic initiatives in AI and digital transformation, positions the company for continued success. The ongoing restructuring and strategic acquisitions are expected to enhance scalability and operational efficiency, aligning SAP with future growth opportunities. The positive financial outlook for 2024 and 2025 underscores confidence in the company’s strategic direction.

SAP’s earnings show a company that’s effectively navigating its cloud transformation journey while leveraging AI innovations to drive growth. The positive financial outlook and strategic initiatives position SAP for continued success in an increasingly competitive landscape. Investors should view SAP’s performance as a testament to its robust strategy and execution, making it a compelling player in the enterprise software market.