Shares of SAP AG, the German software giant, are climbing around 5% in both morning trading in Germany and pre-market activity on the NYSE. The stock rally follows the company’s announcement of better-than-expected third-quarter results and an upward revision to its fiscal 2024 outlook for operating profit and cloud and software revenue.
Strong Q3 Performance
For the third quarter, SAP reported:
- 13% increase in earnings, rising to €1.441 billion compared to last year’s €1.272 billion.
- Earnings per share (EPS) grew by 15%, reaching €1.25, up from €1.09 a year earlier.
- Adjusted earnings were €1.437 billion, up from €1.352 billion last year, with adjusted EPS rising to €1.23 from €1.16.
- IFRS operating profit surged by 29% to €2.21 billion, while non-IFRS operating profit was up 27% to €2.24 billion.
This rise in profitability was fueled by strong revenue growth and the company’s 2024 transformation program, which has begun yielding efficiency improvements.
Revenue Breakdown
- Total revenue for the third quarter increased by 9.4%, reaching €8.47 billion, compared to €7.74 billion in the same period last year.
- Cloud revenue jumped by 25% year-over-year to €4.35 billion, reflecting SAP’s continuing shift toward cloud-based solutions.
- Cloud and software revenue grew by 11%, reaching €7.43 billion.
- SAP’s current cloud backlog, which reflects the value of committed cloud contracts, climbed by 25% to €15.4 billion, and grew by 29% at constant currencies.
Revised 2024 Outlook
Following the strong third-quarter results, SAP raised its fiscal 2024 outlook:
- Non-IFRS operating profit is now expected to be between €7.8 billion and €8.0 billion, up from the previous guidance of €7.6 billion to €7.9 billion. This represents a projected growth of 20% to 23% at constant currencies from last year’s €6.51 billion.
- Cloud and software revenue is projected to be between €29.5 billion and €29.8 billion, reflecting a 10% to 11% increase at constant currencies. The midpoint was raised by €400 million, up from the previous guidance of €29.0 billion to €29.5 billion.
- The company continues to project cloud revenue of €17.0 billion to €17.3 billion, representing a 24% to 27% increase from last year at constant currencies.
Executive Comments
Dominik Asam, SAP’s CFO, expressed optimism about the company’s performance, saying:
“The 2024 transformation program has already started to yield efficiency improvements. This allowed us to deliver a strong operating profit and free cash flow, while retaining our topline momentum. We’re now focused on carrying that momentum into Q4 to safeguard the achievement of our 2025 ambition amidst a highly volatile environment.”
Market Reaction
In response to the positive earnings report and raised outlook:
- SAP shares in Germany were trading at €220.90, up 4.81%.
- In pre-market trading on the NYSE, shares were up 4.6%, trading at $239.99.
SAP’s strong Q3 performance and optimistic outlook for 2024 signal its success in transitioning to the cloud and effectively managing operational efficiencies, boosting investor confidence.
