SAP SE beat revenue estimates in the third quarter as earnings from its cloud business accelerated. Shares rose.
(Bloomberg) — SAP SE beat revenue estimates in the third quarter as earnings from its cloud business accelerated. Shares rose.
Revenue increased 5% at constant currencies to €7.8 billion ($7.7 billion) in the period, the Walldorf, Germany-based software firm said in a statement Tuesday. That compares with a €7.6 billion forecast by analysts in a Bloomberg survey.
Adjusted operating profit remained flat at €2.09 billion in the third quarter, down 8% at constant currencies, amid a decline in revenue from software licenses. SAP said most of the adjustments were related to share-based payments and acquisitions.
SAP has focused in recent quarters on a strategy to get customers to adopt Rise, a service for firms to transition to a suite of new cloud-based products that are intended to work faster while costing less to distribute and maintain.
Third-quarter adjusted operating profit took an approximately €20 million hit from winding down operations in Russia and Belarus. The termination of cloud agreements in those countries reduced the current cloud backlog at the end of the third quarter by €64 million.
SAP will likely miss its end-of-year deadline to exit Russia, Chief Financial Officer Luka Mucic said on a call with reporters.
“We continue to look for options to hand on our remaining business, which is essentially the maintenance business with non-sanctioned customers,” Mucic said. “All other lines of business are going to be wound down by the end of the year.”
Revenue from the software licensing business decreased 42% in constant currencies to €406 million due to the shift to the cloud and tighter cost controls from clients, SAP Chief Executive Officer Christian Klein said on the call.
Key Insights
- Cloud revenue rose 25% at constant currencies to €3.29 billion in the third quarter, beating the average estimate of analysts surveyed by Bloomberg of €3.23 billion.
- The company’s current cloud backlog is €11.27 billion, an increase of 26% at constant currencies.
- SAP took an approximately €250 million hit to its operating profit in the first nine months due to its winding down of operations in Russia and Belarus. The company projects a €300 million impact for the full year.
- SAP downgraded its free cash flow outlook for the year to €4.5 billion, from above €4.5 billion.
- SAP reaffirmed its 2022 cloud revenue outlook, expecting €11.55 billion to €11.85 billion.
What BI Says
“SAP’s high exposure to Europe, with 44% of its sales coming from the region, makes it more susceptible to any pullback in enterprise IT spending vs. other large, diversified software companies.”
-Anurag Rana, Bloomberg Intelligence
Market Context
- Shares of SAP rose 4% as of 9:15 a.m. in Frankfurt. They have fallen 24% this year, compared to a 32% decline in the Stoxx Europe tech index.
(Updates with share price)
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