SAP Q2 results reveal a significant surge in the company’s cloud business, marking a notable milestone in its strategic transformation.
The current cloud backlog reached €14.8 billion, reflecting a 28% increase, while cloud revenue grew by 25%, primarily driven by a 33% rise in Cloud ERP Suite revenue. This performance underscores SAP’s robust growth trajectory in the cloud sector, bolstered by its strategic focus on business AI and transformative initiatives.
SAP’s total revenue for the second quarter of 2024 rose by 10%, reaching €8.29 billion. Despite a decline in IFRS operating profit by 11%, attributed to restructuring expenses, non-IFRS operating profit saw a 33% increase. These results demonstrate SAP’s ability to maintain strong financial health while navigating the costs associated with its ongoing transformation.
Christian Klein, CEO and Member of the Executive Board at SAP, highlighted the company’s disciplined execution of its transformation strategy, which has resulted in an elevated operating profit ambition for 2025. The focus on business AI has been a significant driver, facilitating numerous new deals and contributing to a strong pipeline for future growth. The company remains confident in its ability to achieve accelerating topline growth through 2027, supported by these strategic investments and innovations.
SAP Q2 Results and Market Position
SAP’s performance in the cloud sector is a key indicator of its evolving market position. The company has strategically positioned itself to leverage the growing demand for cloud solutions, evidenced by the substantial growth in its cloud backlog and revenues. The 28% increase in cloud backlog and 25% rise in cloud revenue reflect SAP’s successful penetration into this market segment.
Dominik Asam, CFO at SAP, emphasized the importance of maintaining focus on the company’s financial outlook for the year. The anticipated growth in cloud backlog during the latter half of 2024, particularly in Q4, is seen as crucial for laying a solid foundation for 2025’s cloud revenue targets. The company’s ability to execute its transformation plan efficiently will be instrumental in achieving its ambitious free cash flow targets despite the financial outlays associated with restructuring.
In the broader market, SAP’s strategic focus on cloud computing and AI aligns with industry trends. As businesses increasingly adopt digital transformation initiatives, the demand for scalable, efficient, and AI-driven solutions continues to rise. SAP’s Cloud ERP Suite, which includes offerings like SAP S/4HANA Cloud and the SAP Business Technology Platform, is well-positioned to meet this demand, providing comprehensive solutions for enterprise resource planning and business process transformation.
SAP’s financial outlook for 2024 reaffirms its commitment to sustaining growth. The company projects cloud revenue to reach between €17.0 and 17.3 billion, an increase of 24% to 27% at constant currencies. Additionally, the cloud and software revenue is expected to grow by 8% to 10%, and non-IFRS operating profit is anticipated to rise by 17% to 21%. These projections underscore SAP’s confidence in its strategic direction and its ability to capitalize on market opportunities.
Strategic Investments and Restructuring
SAP’s transformation program, aimed at enhancing operational scalability and efficiency, is a cornerstone of its strategic initiatives. The restructuring efforts, expected to conclude by early 2025, are designed to align the company’s skillset and resources with future business needs. While these efforts have incurred significant costs, they are essential for positioning SAP for sustained growth and competitiveness.
The program includes a substantial focus on business AI, reflecting the company’s commitment to innovation and future-proofing its offerings. The restructuring is expected to affect 9,000 to 10,000 positions, primarily through voluntary leave programs and internal re-skilling measures. Despite these changes, SAP anticipates maintaining a similar headcount by the end of 2024, reflecting its strategy to reinvest in strategic growth areas.
Furthermore, the SAP Q2 results saw significant customer engagements, with numerous organizations choosing SAP’s solutions for their digital transformation journeys. Notable customers like ExxonMobil, Porsche Informatik, and Blue Diamond Growers have adopted RISE with SAP, driving end-to-end business transformations. Additionally, several companies, including BMI Group Holdings and Wegmans, went live on SAP S/4HANA Cloud, further highlighting SAP’s market penetration.
SAP also announced several strategic partnerships and initiatives aimed at enhancing its product offerings and market reach. The collaboration with IBM to introduce new AI capabilities and industry-specific cloud solutions is expected to drive significant value for clients. Furthermore, the acquisition of WalkMe, a leader in digital adoption platforms, is poised to enhance SAP’s capabilities in this area, providing comprehensive solutions to its customers.
