Shares in SAP surged by 5% at market open on Tuesday, reaching an all-time high of 221 euros ($239.21). This impressive rise follows the German software company’s announcement of increased full-year targets, driven by robust growth in its cloud business during the third quarter.
In the latest financial report, SAP revealed that its cloud revenue climbed 27% year-on-year, adjusted for currency fluctuations, totaling 4.35 billion euros ($4.71 billion). A significant contributor to this growth was the 36% increase in sales of its Cloud ERP Suite resource planning software.
Artificial Intelligence as a Growth Driver
CEO Christian Klein highlighted artificial intelligence (AI) as a crucial factor in the company’s performance. He noted that approximately 30% of cloud contracts signed in the third quarter included AI use cases. This integration of AI reflects SAP’s commitment to innovation and its strategy to enhance product offerings.
Analysts’ Perspective on Future Guidance
Despite maintaining its guidance for 2025, Barclays analysts observed that SAP’s new targets seem conservative. They expressed optimism about the company’s future, citing management’s positive outlook and proactive approach in their remarks.
Operating profit for the third quarter grew by 28%, reaching 2.24 billion euros, surpassing market expectations. This increase was attributed to effective cost-cutting measures and a relatively low number of new hires, as noted by CFO Dominik Asam.
Restructuring Plans and Financial Outlook
SAP is currently evaluating its workforce, considering potential job reductions of up to 10,000 positions out of a total headcount of 100,000. The company anticipates restructuring costs to be around 3 billion euros as it prepares for an AI-driven future.
Based on its performance, SAP has raised its full-year cloud and software revenue target to a range of 29.5-29.8 billion euros, up from the previous target of 29-29.5 billion euros. The company now forecasts its 2024 operating profit to be around 7.8 billion euros, an increase from its earlier estimate of 7.6-7.9 billion euros.
Market Implications
JPMorgan analysts view SAP’s strong performance as indicative of overall health in enterprise IT spending, particularly in the software sector. They pointed to other competitors, such as Oracle, Workday, and Microsoft, suggesting that SAP’s success may reflect broader industry trends.
In summary, SAP’s strong third-quarter performance, driven by cloud revenue growth and the integration of AI, has positioned the company favorably in the market, reinforcing investor confidence as it approaches future challenges and opportunities.
Related Topic:
Rescue or Ruin: The Critical Role of Business Rescue in South Africa
New Workers’ Rights Bill Expected to Add £5 Billion Annual Cost for Businesses
