Headline: SAP Reports Robust Q3 2024 Growth, Raises Outlook

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Headline: SAP Reports Robust Q3 2024 Growth, Raises Outlook

SAP SE (SAP) announced strong financial results for the third quarter of 2024, reporting significant increases in both cloud revenues and operating profit. The company’s current cloud order book increased by 29% to €15.4 billion, while cloud revenues grew by 27% to reach €4.4 billion. A major growth driver, SAP’s Cloud ERP Suite, rose by 36% to €3.6 billion.

Operating profit surged by 28% to €2.2 billion, resulting in an operating profit margin of 26.5%. The acquisition of WalkMe is expected to enhance SAP's business transformation offerings. The company also announced customer acquisitions with major organizations such as Schwarz Group, Sainsbury's, and Mercado Libre.

Looking toward 2025, SAP increased its operating profit outlook to between €7.8 and €8 billion and remains optimistic about its strategic initiatives as it prepares for the final quarter of the year.

Key Highlights

  • SAP's current cloud order book rose by 29% to €15.4 billion.
  • Cloud revenues grew by 27%, driven by a 36% increase in the Cloud ERP Suite.
  • Operating profit increased by 28% to €2.2 billion with a margin of 26.5%.
  • The company completed the acquisition of WalkMe, strengthening its portfolio.
  • SAP raised its 2024 operating profit outlook to €7.8 to €8 billion.
  • Deals over €5 million accounted for more than 60% of cloud order entry.
  • Free cash flow increased by 44% to €1.2 billion in Q3.
  • Total revenue for the quarter reached €8.5 billion, a 10% year-over-year increase.
  • SAP plans to focus on workforce adjustments and strategic initiatives in Q4.

Outlook

  • SAP raised the midpoint of its revenue guidance by €0.25 billion.
  • The company expects slightly higher year-end employee numbers due to the WalkMe integration.
  • SAP is cooperating with a DOJ investigation but does not anticipate any significant operational impact.
  • The U.S. federal business arm, while comprising a low single-digit percentage of total revenue, remains a growth target.

Challenges

  • SAP reported challenges with a mid-single-digit decline in the transaction business.
  • Support revenues are declining with the potential for an accelerated drop as the cloud transition progresses.

Opportunities

  • SAP has a strong business pipeline and anticipates healthy gross profit margin expansion.
  • The company focuses on strengthening its mid-market presence and optimizing channel strategies.
  • SAP is confident in achieving its 2025 cloud revenue target of €21.5 billion.

Limitations

  • Excluding WalkMe's contribution, annual growth remained flat.
  • There are challenges from product cannibalization with WalkMe replacing Enable Now.

Q&A Highlights

  • SAP executives confirmed cooperation with the DOJ and clarified that a recent FBI search at Carahsoft offices was unrelated to SAP.
  • Plans for a go-to-market transformation beginning in January were discussed, focusing on expanding volume business and partner collaboration.
  • SAP aims to simplify complex processes and enhance efficiency through its RISE methodology.

The third quarter earnings discussion highlighted SAP's strong financial performance and strategic focus on cloud growth. Despite some challenges, SAP continues to progress on its transformation journey, enhancing its product offerings and positioning itself for continued success in the coming quarters.

InvestingPro Insights SAP's strong financial results for the third quarter of 2024 are reflected in its robust market performance. According to InvestingPro data, SAP's market capitalization stands at an impressive $265.25 billion, underscoring its significant position in the software sector. This aligns with the reported growth in cloud revenue and operating profit.

InvestingPro reports a 6.57% revenue growth over the past twelve months, supporting the narrative of SAP's expanding cloud business and growing customer acquisitions. Additionally, a 9.76% quarterly revenue growth in Q2 2024 indicates acceleration in the company’s top-line performance, consistent with the 10% annual increase in total revenue noted in the earnings report.

InvestingPro Tips highlight SAP's 33-year streak of uninterrupted dividend payments, demonstrating its commitment to shareholder returns. This is particularly noteworthy given the company’s focus on growth and strategic acquisitions like WalkMe. The tip also notes SAP operates with moderate debt levels, providing financial flexibility for future investments and expansion.

Another relevant InvestingPro Tip points out that SAP has been trading near its 52-week high following significant price appreciation over the last six months. This is in line with the company's upgraded outlook for 2024 and confidence in meeting the 2025 cloud revenue goal. As mentioned in the tips, the stock’s strong returns over the past year reflect investor optimism about SAP's strategic direction and financial performance.

It is important to note that InvestingPro offers 15 additional tips for SAP, providing investors with a comprehensive analysis of the company’s financial health and market position. These insights can be valuable for those looking to make informed investment decisions based on SAP’s recent performance and future prospects.