SAP’s cloud revenue grew by 25 per cent in the third quarter as Europe’s biggest software company worked to transition customers away from locally run systems with the promise of artificial intelligence (AI) tools and analytics.
Cloud revenue rose from a year earlier to 4.4 billion euros (S$6.3 billion), the Walldorf, Germany-based company said on Monday (Oct 21), roughly in line with analysts’ estimates. The firm’s cloud backlog, which reflects sales that will be booked over the next twelve months, gained 25 per cent to 15.4 billion euros.
SAP has prospered even as Germany’s economy stalls, with gross domestic product forecast to contract for a consecutive second year in 2024. The software company’s customers are shifting to the cloud, where the company has been beefing up its offerings of AI services for enterprise users. Cloud business promises higher average spending per client than SAP’s legacy on-premise software.
SAP raised its 2024 outlook for some financial metrics, including free cash flow, which is now seen at 3.5 billion to four billion euros, from about 3.5 billion euros previously. Its guidance for 2024 cloud revenue remains 17 billion to 17.3 billion euros at constant currencies, up 24 to 27 per cent.
Chief executive officer Christian Klein is seeking to accelerate the shift to the cloud, in part using a new AI-focused strategy announced early this year. About 30 per cent of cloud deals in the third quarter contained business AI use cases, Klein said on a call with journalists after the results.
Around 10,000 jobs will be affected as part of a restructuring associated with the new strategy, which cost 2.8 billion euros in the first nine months.
SAP shares have risen 51 per cent so far this year. The company’s American depositary receipts were up 3.3 per cent after markets in New York closed on Monday.
The growth comes even as there’s been high turnover at the executive board. Chief marketing officer Julia White and chief revenue officer Scott Russell left the company in August. Chief technology officer Jurgen Müller departed last month and faces a criminal probe from German prosecutors over inappropriate conduct.
SAP is also facing a civil investigation in the US, its biggest market. The Justice Department is looking into whether the company illegally conspired with product reseller Carahsoft Technology to fix prices with almost 100 government agencies, Bloomberg News reported this month. BLOOMBERG
