In SAP’s second quarter earnings call for 2022, the organization announced a 34% jump in cloud revenue, 24% at constant currencies, making it SAP’s largest revenue stream. Current cloud backlog, contractually committed revenue that SAP expects to recognize over the coming 12 months, also exceeded €10 billion for the first time ever. Much of this was driven by an increase in SAP S/4HANA Cloud revenue, up 84% to €472 million, and SAP S/4HANA current cloud backlog which increased by 100% to €2.26 billion. SAP saw strong cloud performance in all regions, with CFO Luka Mucic calling out exceptional growth in Germany, and strong growth in the US, Brazil, Japan, India, and Switzerland. Total SAP S/4HANA adoption increased to approximately 20,000 customers, with more than 650 licensing the solution during the quarter. SAP also reported that more than 14,500 of those are now live. As in the last two quarters, over 60% of those additional SAP S/4HANA customers are net new to enterprise ERP. This is a statistic that is also true for adoption of the software-as-a-service (SaaS) version, with CEO Christian Klein stating that the net new customer share for SAP S/4HANA Cloud was 60%. In addition, during the question-and-answer portion of the call, Executive Board Member Scott Russell stated that there are now approximately 2,000 RISE with SAP customers, an increase of 400 during the quarter.

SAP S/4HANA and RISE with SAP Adoption

In addition to the numbers that were mentioned during the call, Russell also discussed adoption of RISE with SAP. He admitted that, when SAP first launched RISE with SAP, a high proportion of the customers that adopted the offering were net new or were mid-sized. While this had been suspected, it was one of the first times that a member of the SAP Executive Board had stated this so plainly. However, what Russell said immediately afterwards was that SAP is now seeing an increasing proportion of larger customers are adopting the solution although those who are net new to enterprise ERP at SAP still tend to be mid-sized. Drilling into cloud deal size, Mucic indicated that more than 48% of the cloud business closed in the second quarter were deals larger than €5 million. This does align with SAP’s statements around larger customers moving to RISE with SAP and SAP S/4HANA Cloud, but SAP S/4HANA Cloud only represents around 15% of SAP’s €3,056 million total cloud revenue which suggests that many of these large deals may be from other sources. Although SAP now breaks down cloud revenue into SaaS, platform-as-a-service (PaaS), and infrastructure-as-a-service (IaaS) line items and SaaS makes up €2,409 million of that €3,056 million total, that number also includes SAP SuccessFactors, SAP Concur, SAP Ariba, and other contributors. Broadening the picture to overall SAP S/4HANA adoption, the official second quarter earnings report indicated that 60% of the 600 customers who licensed SAP S/4HANA this quarter were net new to enterprise ERP at SAP. This continues a trend from the last two quarters and is an increase over the 50% that SAP reported for the previous year or more. This suggests two things. The first is that SAP S/4HANA is performing well competitively as organizations looking for a new enterprise ERP system are adopting the solution in significant numbers. Klein made mention of this earlier in the call when discussing the growth in SAP S/4HANA order entry demonstrating significant gains in market share. The second item is that, while the number of customers purchasing SAP S/4HANA licenses continues to increase, the proportion of existing customers making that move has gone from 50% to 40%. This suggests that many of SAP’s existing base of ERP customers still have no plans for SAP S/4HANA. Previous posts have talked about RISE with SAP adoption and, while this most recent earnings report does suggest that 700 customers have adopted RISE with SAP this year, it does not appear that adoption of the offering is accelerating. Around 1,300 customers adopted RISE with SAP during 2021, and the growth this year is largely linear. While Russell made it clear that larger organizations are adopting RISE with SAP, and deals involving Microsoft and IBM switching their corporate ERP systems to RISE with SAP were recently announced, the bulk of RISE with SAP deals are still likely to be net new or mid-size organizations.

What Does This Mean for SAPinsiders?

With cloud revenue becoming the largest revenue stream for SAP this quarter, SAP’s mid-term cloud goals are now much closer to becoming a reality. However, this means that SAP will continue to focus on increasing cloud revenue, and this includes an emphasis on SAP S/4HANA Cloud and RISE with SAP. Even though SAP is still selling the on-premise version of SAP S/4HANA, you may find that there is pressure from SAP to use SAP S/4HANA Cloud or to move to RISE with SAP. Ensure that you understand all the options and move forward with the best option for you. But be prepared to be specific about what you want and what is best for your organization.