SAP Rides Cloud Wave to Strong Q3

German software giant SAP SE reported stronger-than-expected third-quarter results on Monday, driven by robust cloud revenue growth and early benefits from its corporate transformation program, prompting the company to raise its full-year guidance.

The Walldorf-based company saw cloud revenue surge 25% to €4.35 billion, while operating profit jumped 29% to €2.21 billion. The results underscore SAP’s successful transition from traditional software licensing to cloud-based solutions, a strategic pivot that has been years in the making.

“Q3 was another strong quarter for SAP, and we are confidently raising our 2024 financial outlook,” said Chief Executive Officer Christian Klein. “Cloud revenue growth developed remarkably well in the quarter, especially for our Cloud ERP Suite.”

The enterprise software leader has raised its 2024 forecast for cloud and software revenue to €29.5-29.8 billion, up €400 million from its previous guidance. The company also lifted its operating profit outlook to €7.8-8.0 billion, reflecting growing confidence in its business transformation.

Artificial intelligence is emerging as a key growth driver, with SAP reporting that a significant portion of its cloud deals in Q3 included AI use cases. The company highlighted progress with innovations such as SAP Knowledge Graph, signaling its push to integrate AI capabilities across its product portfolio.

SAP’s transformation program, announced earlier this year, is already showing results. Chief Financial Officer Dominik Asam noted that efficiency improvements helped deliver strong operating profit while maintaining revenue momentum. The program, which affects 9,000 to 10,000 positions, has incurred €2.8 billion in restructuring expenses through the first nine months of 2024.

The company completed its acquisition of digital adoption platform provider WalkMe in September for approximately €1.3 billion, adding capabilities to help customers navigate technological change.

Customer adoption remains strong, with major global players including eBay, Mondelez International, and Rolls-Royce Power Systems choosing SAP’s cloud solutions. The company’s current cloud backlog grew 25% to €15.38 billion, indicating robust future revenue potential.

Regional performance showed particular strength in Asia-Pacific and Europe, with notable growth in key markets including Germany, Japan, and India. The Americas region demonstrated steady progress, with cloud revenue reaching €1.99 billion.

Financial metrics showed broad improvement, with free cash flow increasing 44% to €1.25 billion, despite restructuring payments. The company’s cloud gross margin improved to 73.2%, suggesting better economies of scale in cloud operations.

SAP’s results come as enterprise software companies face increasing pressure to demonstrate successful cloud transitions while managing traditional business lines. The company’s ability to grow cloud revenue while maintaining profitability and investing in future capabilities appears to be resonating with customers and investors alike.

Looking ahead, SAP faces the challenge of continuing its cloud momentum while executing its restructuring program and integrating artificial intelligence capabilities. However, the raised guidance suggests management confidence in navigating these challenges through the remainder of 2024.