Revenue Radar: SAP on cloud nine following latest financial results
SAP’s cloud transformation continues to gain momentum, with cloud revenue growing 25% year-over-year to reach €4.35 billion in Q3 2024, demonstrating the company’s successful pivot from traditional software licensing to cloud-based solutions.
The results, released on October 21, 2024, prompted SAP to raise its full-year outlook for cloud and software revenue, operating profit, and free cash flow.
The company’s strategic shift to cloud continues to deliver strong results. Cloud ERP Suite revenue grew 34% to €3.64 billion, demonstrating strong customer adoption of SAP’s core cloud offerings. The share of more predictable revenue increased by 2 percentage points to 84%, indicating improved revenue stability.
Notably, cloud revenue performance was particularly robust in the Asia-Pacific-Japan (APJ) and EMEA regions, with outstanding performances in key markets including Brazil, Chile, Germany, Italy, India, Japan, and Spain.
A significant portion of cloud deals in Q3 included AI use cases, highlighting SAP’s successful integration of artificial intelligence into its product portfolio. The company reported making strong progress on Business AI, including the introduction of innovations such as SAP Knowledge Graph.
This AI focus appears to be resonating with customers, as evidenced by the strong cloud revenue growth.
SAP’s 2024 transformation program, announced earlier in the year, is already yielding efficiency improvements. The program, which affects 9,000 to 10,000 positions, has recorded restructuring expenses of €2.8 billion in the first nine months of 2024. Despite these costs, SAP expects to exit 2024 with a headcount slightly ahead of year-end 2023, reflecting re-investments in strategic growth areas and the acquisition of WalkMe.
The completion of the WalkMe acquisition in September 2024 represents a strategic move to enhance SAP’s business transformation portfolio. WalkMe’s digital adoption platform capabilities are expected to help SAP customers navigate technological change through advanced guidance and automation capabilities. The initial consideration for the acquisition was approximately €1.3 billion.
Financial Outlook Based on strong Q3 performance, SAP has raised its 2024 guidance:
Despite the significant restructuring costs, SAP’s profitability metrics show encouraging trends. The IFRS operating margin increased to 26.1% in Q3 2024, up from 22.2% in Q3 2023. Cloud gross margins also improved, reaching 73.2% (IFRS) and 73.7% (non-IFRS), indicating better economies of scale in cloud operations and successful cost management. This margin expansion while maintaining strong revenue growth demonstrates effective execution of SAP’s transformation strategy.
The shift in SAP’s revenue composition tells a compelling story of its business transformation:
Breaking down the regional performance reveals interesting patterns:
Major global organisations continue to choose “RISE with SAP” for their business transformations, including notable names such as eBay, Mondelez International, and Rolls-Royce Power Systems. Additionally, companies like Nvidia and CPKC Railways went live on SAP S/4HANA Cloud during the quarter, demonstrating successful implementation of SAP’s cloud solutions across diverse industries.