SAP SE delivered strong financial performance in the third quarter thanks to continued demand for its cloud applications.

The German software maker posted earnings for the three months ended Sept. 30 late Wednesday. In conjunction, SAP reaffirmed the full-year growth guidance that it issued earlier this year. The company estimates that its annual cloud revenue could surpass $15 billion for the first time in 2023. 

In the third quarter, SAP topped the consensus revenue estimate by a hair with sales of €7.74 billion, which equals $8.43 billion. That represents a 4% increase from a year earlier. In the same time frame, SAP’s core cloud and software business grew its top line by 9%, to €6.67 billion.

SAP historically generated most of its revenue from selling on-premises software licenses. In recent years, the company has adopted a cloud-centric business model that prioritizes subscriptions over licenses. Its third-quarter revenue numbers reflect that shift.

License sales declined 14% year-over-year during the quarter. Cloud sales, meanwhile, jumped 16%, to €3.47 billion. One particularly major source of growth for SAP is S/4HANA, the cloud version of its flagship enterprise resource planning platform, which delivered a 67% year-over-year revenue increase.

SAP’s top-line momentum boosted its earnings. It logged an adjusted operating profit of €2.27 billion, or $2.4 billion, a 10% increase from the third quarter of 2022. That translates into adjusted earnings of €1.45 or $1.55 per share, well ahead of the $1.40 a share that analysts had projected. 

The company expects to close the books on fiscal 2023 with €14 billion to €14.2 billion in cloud revenue, which amounts to just over $15 billion on the high end of the range. The company’s “more predictable revenue” segment, which includes items such as cloud subscriptions, is expected to account for 82% of its total sales in 2023. That’s up from 79% in 2022.

“Our Q3 results demonstrate strong execution and the resilience of our business, including sustained cloud growth in spite of persisting macro headwinds,” said SAP Chief Financial Officer Dominik Asam. “Also, we carefully balance growth and profitability at all times. In combination, this allows us to boost our bottom-line with the aim to achieve double-digit operating profit growth this year.”

In recent months, generative artificial intelligence has emerged as another key priority for SAP alongside its shift to a cloud-centric business model. The company recently introduced an AI assistant called Joule that can help users quickly find data stored in its software. According to SAP, Joule will eventually also be capable of performing more advanced tasks such as troubleshooting supply chain issues.

SAP also disclosed that thousands of customers have agreed to make their data available for its AI training initiatives. The company is building custom large language models to power its machine learning features. SAP plans to start rolling out AI assistants across its software portfolio later this fall. 

Photo: SAP