SAP misses revenue estimates as cloud growth slows

• Expects cloud revenue to reach the lower end of its previously forecasted range (€21.6 to €21.9 billion) for 2025, citing persistent uncertainty.

German enterprise software leader SAP faced investor scrutiny this week after reporting third-quarter results that fell short of revenue expectations, highlighting both its ongoing cloud transition and the current economic uncertainties.

On Wednesday, SAP announced Q3 revenue of €9.08 billion ($10.59 billion), up 7 per cent from the prior year but just below analyst forecasts of €9.17 billion. The shortfall sparked a 3 per cent dip in SAP’s US-listed shares during after-hours trading, reflecting concerns in the market.

A key driver of SAP’s strategic evolution, its cloud business, posted 22 per cent growth year-on-year—a robust figure, but the segment’s slowest pace since late 2023.

The company, headquartered in Walldorf, Germany, has steadily shifted from up-front software licensing to a subscription-driven, cloud-based model, betting on more predictable, recurring income.

However, Wednesday’s results signal that cloud expansion may be facing headwinds in an uncertain macroeconomic environment.

Profitability remains strong

Despite the revenue miss, SAP delivered on profitability. Operating profit (on a non-IFRS basis) climbed 14 per cent to €2.57 billion, slightly ahead of analyst expectations. Free cash flow, a critical indicator for dividends, also grew by 5 per cent to €1.27 billion.

“We’ve maintained forward momentum despite an uncertain macroeconomic backdrop,” said CFO Dominik Asam, underlining management’s confidence in the company’s strategic direction.

Revised guidance signals caution

SAP provided a measured outlook for the remainder of the year and into 2025. It now expects cloud revenue to reach the lower end of its previously forecasted range (€21.6 to €21.9 billion), citing persistent uncertainty.

In contrast, operating profit is anticipated to come in at the upper end of expectations (€10.3 to €10.6 billion), and free cash flow guidance has been raised to €8– €8.2 billion from the earlier €8 billion estimate.

The guidance reflects SAP’s ability to manage costs and generate cash, even as cloud growth decelerates. Investors responded with caution, sending SAP shares down after the earnings release. The moderated cloud outlook raised questions about whether SAP, and its peers, is entering a more mature phase of cloud adoption.

As the company navigates this transition, investors and analysts will be watching closely to see if SAP can reinvigorate its cloud momentum or deliver additional operational efficiencies to sustain shareholder returns.