SAP SE today posted lower-than-expected financial results for the second quarter, but disclosed that sales of its S/4HANA Cloud platform surged 74%.

The German software maker logged an adjusted profit from continuing operations of €1.24 billion in the three months ended June 30. That represents a 14% year-over-year increase. The sum doesn’t include the €2.6 billion SAP earned from selling its remaining stake in Qualtrics International Inc., a software company it bought in 2018 and took public two years later.

SAP’s €1.24 billion profit translated into adjusted earnings per share of €1.07. Analysts polled by Zacks had expected slightly more.

During the second quarter, the software maker also fell short of revenue projections. SAP’s top line climbed 5% year-over-year, to €7.55 billion, but that growth wasn’t enough to meet the Zacks consensus estimate. The bright spot in the company’s revenue numbers is that its cloud business continued to experience strong growth during the second quarter.

Investors weren’t impressed in any case. SAP’s stock today fell by more than 6%, to $133.93 a share.

Although SAP’s revenue from traditional software licenses dropped 26%, its cloud sales increased 19% year-over-year and reached €3.31 billion. One particularly major driver of growth for the company was its S/4HANA Cloud enterprise resource planning platform. The platform’s revenue contribution jumped 74% year-over-year, to €823 million.

To support its shift to a software-as-a-service business model, SAP launched a major modernization of its cloud infrastructure in 2021. That effort wrapped up in the second quarter. The company says it moved 20,000 organizations and a half-million users to “state-of-the-art, harmonized cloud infrastructure” as part of the project.

SAP’s installed base of cloud users is on track to continue growing. The company’s cloud backlog, a metric that measures future purchases of its SaaS products, rose 21% in the second quarter. SAP S/4HANA Cloud’s backlog jumped 65%, to €3.72 billion. 

SAP’s long-term growth plans emphasize not only on the cloud but also artificial intelligence.

During the second quarter, the software maker inked AI partnerships with Microsoft Corp. and IBM Corp. SAP plans to integrate several of the companies’ machine learning products into its software portfolio. The second quarter also saw Sapphire Ventures, a SAP-affiliate venture capital firm, announce plans to invest $1 billion in generative AI startups. 

“We see significant opportunities ahead, in particular through the transformative power of AI,” said SAP Chief Executive Officer Christian Klein. “We are focused on delivering SAP Business AI that’s relevant, reliable and responsible and we see significant possibilities for market expansion through these technologies and new premium offerings.”

SAP expects to close the current fiscal year with cloud revenue of €14 billion to €14.2 billion, which would represent a year-over-year increase of 24% on the high end. In the longer term, the company is seeking to boost its annual cloud sales to more than €21.5 billion by 2025. SAP expects its total revenue to reach €37.5 billion that year.

“SAP keep struggling to convince its customer base to upgrade to S/4HANA as management thought it would – no matter whatever initiatives SAP throws at customers, which is not a surprise,” Constellation Research Inc. analyst Holger Mueller told SiliconANGLE. “The surprise is that SAP management was surprised by it as well, not managing costs, which grew overall by approximately $1.5 billion – versus revenue that grew ‘only’ by $1 billion. The result is a less profitable SAP, which neither customers nor investors want to see. Now it’s up to Klein and team to deliver to the new adjusted revenue and profitability targets.”

Photo: SAP