Cloud Revenue Drives Strong Q3 for SAP

SAP has announced a strong performance in the third quarter of 2023, making a recovery from a softer-than-expected Q2. While the total revenue increased 9% at constant currencies, final numbers were still slightly below the market’s expectations. However, earnings per share beat market expectations by nearly 7%, with IFRS EPS up by 45% from 2022. The numbers were driven by a 23% increase in cloud revenue at constant currencies, 77% for SAP S/4HANA Cloud revenue, and a 25% increase in the current cloud backlog to nearly €12.27 billion.

SAP CEO Christian Klein said the results reflected the strong foundation that SAP has built over the last three years and that SAP is now in the second phase of its transformation into a cloud company. Klein revealed that SAP BTP, which underpins both RISE with SAP and GROW with SAP, now has over 22,000 live customers, contributing to almost 50% growth in the platform-as-a-service (PaaS) business.

Cloud revenue was particularly strong in EMEA and APJ, with EMEA seeing 32% growth and APJ 27% growth at constant currencies. Though the cloud revenue grew at 16% in the Americas, much of that was due to a particularly strong performance in Brazil and Canada. Klein attributed this regional slowdown h to the macroeconomic pressures that particularly affected travel and contingent workforces in North America, which had an impact on SAP Concur and SAP Fieldglass.

Despite cloud revenue increasing globally, SAP’s cloud and software revenue decreased in both the Americas and APJ only seeing growth in EMEA. Klein indicated this was due to the flat transactional revenue from the macroeconomic challenges and SAP’s continued departure from selling traditional software licenses. SAP expects transactional revenue to trend down over the coming quarters as they move towards more predictable, or cloud, revenue.

On a positive note, Klein revealed that there are now more than 4,300 RISE with SAP customers. Although SAP stopped reporting SAP S/4HANA and RISE with SAP adoption numbers in early 2022, the current number reflects a 100% increase in RISE with SAP customers since they were previously announced. While not all of these customers have necessarily moved to SAP S/4HANA yet, the numbers indicate that momentum is building. Additionally, there are more than 440 GROW with SAP in 80 countries in just three quarters since it was announced. Most of these customers are in North America, but since the offering is intended for customers that are net-new to SAP ERP, this reflects strong performance.

SAP’s lack of response was noteworthy when a financial analyst asked about the momentum with the move to SAP S/4HANA and SAP S/4HANA Cloud adoption. SAP revealed no information or customer numbers. Klein and the SAP Executive Board Member for Customer Success, Scott Russell, only discussed how large enterprise customers are moving to RISE with SAP.

This lack of data on the number of licensed and productive SAP S/4HANA customers suggests that adoption is steady but is not accelerating. This also aligns with SAPinsider research findings. While Klein emphasized that the 2027 end of maintenance deadline will not be extended, conversations with customers and partners suggest that most regard this date as a soft deadline. There is also a continued pushback on the need to move to RISE with SAP when many customers have already invested in deploying SAP S/4HANA in a cloud-native environment or simply do not see the value in the offering compared to a more traditional deployment. How this plays out over the next year will be decisive for SAP.

RISE with SAP Premium Plus, which was recently announced by Eric van Rossum, SAP Chief Marketing and Solutions Officer for Cloud ERP, was mentioned multiple times on the earnings call. RISE with SAP Premium Plus contains the sustainability features and generative AI assistant Joule that were discussed at the Rise into the Future event, but will also contain advanced finance and cash flow capabilities. Although there was no discussion of how this would relate to the overall cloud revenue, Klein has indicated a 30% price uplift to access the premium offering in the past. Klein stated that, although only recently been announced, this is a premium package with real value and SAP is already seeing positive customer feedback.

What Does This Mean for SAPinsiders?

While SAP’s overall performance is relevant to most customers, cloud revenue numbers are not directly connected to the day-to-day activities in any SAP system. However, cloud revenue numbers are important because SAP continues to push customers towards solutions where SAP can recognize that cloud revenue. This will not change even though many SAPinsiders may not yet be ready for this move.

No matter SAPinsiders’ decisions regarding their ERP systems over the next five years, being prepared for those decisions is crucial. Start that planning process today. Evaluate business processes. Determine what customizations are in use. Review license usage and learn how that translates into the licensing systems used in SAP S/4HANA and RISE with SAP. All these steps will help ensure that no matter whether RISE with SAP or something else is used, every organization is prepared to make the right decisions when the time comes.