The DAX group confirmed its growth forecast for the cloud business for the full year as well as for the group and operating profit. Three months ago had SAP lowered its cloud outlook slightly.
In the three months to the end of September, SAP increased group sales, which include both the cloud business and the software licenses and support business, by 9 percent on a currency-adjusted basis to 7.74 billion euros. Cloud sales alone increased by 23 percent after adjusting for currency effects to 3.47 billion euros. Analysts had expected 3.53 billion euros in a consensus provided by SAP itself.
Operating profit on a non-IFRS basis – also adjusted for exchange rate effects – increased by 16 percent to 2.28 billion euros. That was above the analyst forecast of 2.19 billion euros.
SAP continues to see cloud sales of 14.2 to 14.4 billion euros for the full year, which, adjusted for exchange rates, would correspond to growth of 23 to 24 percent compared to the previous year. Cloud and software revenues combined are expected to increase by 6 to 8 percent after adjusting for currency effects to between 27.0 and 27.4 billion euros.
The currency-adjusted operating result (non-IFRS) is expected to be between 8.65 and 8.95 billion euros, which would correspond to an increase of 8 to 12 percent compared to 2022.
SAP CFO: We have to make an effort in the fourth quarter
SAP needs to go one step further in the final quarter to meet its cloud growth targets this year. But the CFO is optimistic. “In fact, we have to make efforts to achieve our cloud revenue target in the fourth quarter,” said Dominik Asam in an interview with Dow Jones Newswires. “We are confident because we saw a slight acceleration in cloud revenue in the third quarter.
The evening before, SAP had confirmed its cloud growth forecast for the full year, which was slightly lowered three months ago. Growth jumped to 23 percent in the third quarter after adjusting for currency effects, after 22 percent in the previous quarter. The software company is targeting 23 to 24 percent for the year as a whole. “We are proud that we are staying the course despite the macroeconomic headwinds,” said Asam.
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This is well received on the market: the shares rose by over 5 percent on Thursday morning. SAP reported a solid quarter in an uncertain environment, write analysts at Citigroup.
SAP is doing everything it can to secure growth, said Asam. The group is focusing heavily on bringing customers who currently rely on licensed software on their own systems into the cloud. “The cloud offers the greater speed of innovation and we are doing what we can to make it easier for our customers to move to the cloud,” he said. But there are customers, for example in the government sector, for whom the licensing business is important.
On track for double-digit earnings growth
Asam sees potential for recovery in “transactional” sales on platforms such as the travel booking and billing portal Concur and Fieldglass, a platform for temporary employment, because “we are currently operating at a very low level there”. He also refers to the order backlog (Current Cloud Backlog), which quantifies the secured orders over a year. This grew by 25 percent after adjusting for currency effects for the third quarter in a row.
In terms of operating profit on a non-IFRS basis, SAP is now clearly on track to achieve its targeted growth rate of 8 to 12 percent for the full year, with growth of 19 percent in the first nine months. “We actually have a very comfortable starting position in terms of operating profit for the full year,” said Asam. “We also have to digest a few headwinds in the fourth quarter,” the manager warned at the same time. He cited a higher number of employees and negative special effects. But Asam was satisfied. “The likelihood that we will reach the midpoint of the guidance in terms of operating profit and thus achieve double-digit growth is now very strong.”
SAP will increase its efforts to reduce costs. “We are turning a lot of screws to ensure that costs grow at a lower rate than sales,” says the CFO. However, this will not come at the expense of central investments. “I would like to emphasize that we definitely do not want to place mortgages on the future and that we will continue to invest aggressively in research and development in order to be at the forefront of topics such as artificial intelligence. Because these topics will also be crucial to our cloud -Increase sales”
SAP increases significantly – figures “better than feared”
SAP shares rose by 5.07 percent on Thursday according to quarterly figures and closed at 127.28 euros. In doing so, they jumped over several technical chart average lines that were groundbreaking for the short to medium-term trend and were among the biggest winners in the DAX. They have already gained more than a third in value since the beginning of the year.
After significant growth, especially in the promising cloud business, the software company is on track to meet its annual targets. Reactions on the market were predominantly positive.
The Walldorfers did better than he feared, commented Jefferies analyst Charles Brennan. Michael Briest from the major Swiss bank UBS also attested to SAP’s “very decent figures”. In order to achieve the confirmed annual targets, the company must increase cloud revenues by at least a quarter in the final quarter – after 23 percent in the previous quarter.
Knut Woller from Baader Bank saw the operating result (EBIT) above expectations thanks to the strong license business – only the cloud revenues were a little disappointing. With a market value of almost 160 billion euros, SAP is by far the highest valued company in Germany.
FRANKFURT (Dow Jones / dpa-AFX)
Image source: Cineberg / Shutterstock.com, nitpicker / Shutterstock.com, SAP AG / Wolfram Scheible