SAP Announces Q3 Financial Results Doubling Down on ‘New Phase of Transformation’
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⇨ SAP has announced its Q3 2023 financial results.
⇨ The German giant reaffirmed its 2023 outlook with its total revenue up 4 percent to €7.74bn.
⇨ Christian Klien emphasizes the companies next phase in transformation with cloud and AI innovations at the center.
SAP has announced its Q3 2023 financial results, demonstrating cloud revenue growth of 16 percent to €3.47bn, up 23 percent at constant currencies. SAP explained this success as mainly driven by the growth of SAP’s combined SaaS and PaaS portfolio, which was up 19 percent and up 26 percent at constant currencies.
The German giant reaffirmed its 2023 outlook with its total revenue up 4 percent to €7.74bn and up 9 percent at constant currencies. Its current cloud backlog is up 19 percent to €12.3bn and up 25 percent at constant currencies.
Despite the strong cloud growth, however, SAP narrowly missed revenue goals, likely due to the decrease in software license revenue.
SAP S/4HANA current cloud backlog had an impressive rise of 58 percent to €4.20bn and up 66 percent at constant currencies. Owing to the company’s aggressive RISE and GROW campaigns, SAP S/4HANA cloud revenue was up 67 percent to €914m and up 77 percent at constant currencies.
Christian Klein, CEO of SAP, said: “Our Q3 results are yet another proof point that we have entered the next phase of our transformation. We accelerated cloud growth across our portfolio and significantly expanded our cloud gross margins. Our strong focus on innovation, including our latest SAP Business AI capabilities, ensure SAP’s continued resiliency in the face of tough macroeconomic conditions and increasing geopolitical tensions.”
Supported by a few major transactions, notably the intention to acquire EAM powerhouse LeanIX, software licenses revenue decreased by 17 percent to €335m and was down 14 percent at constant currencies. Cloud and software revenue was up 4 percent to €6.68bn and up 9 percent at constant currencies.
Cloud gross profit growth was supported by a strong increase in cloud gross margins. In the third quarter, SAP’s cloud revenue performance was particularly strong in APJ and EMEA and solid in the Americas region. Brazil, India and the Netherlands had high cloud revenue growth while Canada, China, France, Germany, Japan and Switzerland performed particularly strongly.
Robert Holland, VP and research director, SAPinsider, commented on the results by saying: “Overall, SAP’s executives pushed a strong narrative around being on track to meet 2025 targets. Cloud revenue, the biggest factor in meeting these targets, grew in all regions – although it was strongest in EMEA (30 percent) and APJ (14 percent) with just 8 percent growth in North America.
“When asked why that was the case, (executive board member for customer success) Scott Russell said that a large part of that difference was the fact that Concur, Fieldglass and Ariba have their biggest markets in North America and there has been a decline in travel and contingent workforce expenditure due to current global economic trends.”
Holland also noted that when asked a direct question about momentum on SAP S/4HANA adoption, neither Russell or Klein provided any numbers. “This,” the analyst believes, “tends to suggest that growth remains linear and is not accelerating in the way that would be needed if most customers were to move off SAP ECC and SAP R/3 by the end of 2027.”
In other words, SAP may be in a new phase of transformation – but not all customers appear to be on the same journey.