SAP SE reported 10% revenue growth on a 27% jump in cloud sales in its fiscal fourth quarter, beating analyst estimates.

Total revenue of €9.38 billion ($9.79 billion) in constant currencies beat Wall Street forecasts of 9.1 billion euros, while operating profit jumped 24%, to €2.44 billion ($2.55 billion), ahead of analyst estimates of €2.25 billion ($2.35 billion).

The enterprise resource planning giant’s operating margin climbed to 26% from 23.3% a year earlier, beating estimates of 24.5%. Cloud revenue totaled €4.67 billion ($4.87 billion) in the quarter and €17.21 billion ($17.96 billion) for the year, up 26%.

Meantime, Cloud ERP Suite revenue rose 34% in constant currencies for the year. Software license revenue declined 19%, to €680 million ($710 billion), reflecting SAP’s shift from software licenses to cloud subscriptions.

Despite the strong results, SAP shares sank nearly 2% in early trading today. Analysts speculated that the selloff may stem from the company’s statement that it expects its cloud backlog growth to “slightly decelerate” in 2025.

Other than that, SAP had an outstanding 2024. Cloud revenue came in at the high end of its revised forecasts in October. Cloud and software revenue, operating profit and free cash flow also beat the latest forecast.

Transition complete

SAP Chief Executive Christian Klein (pictured) said the results validate the success of the company’s strategic move to cloud subscriptions. “Four years ago, SAP shares took a hit when we announced our plan to transform the company,” he said. “The markets had serious doubts we could pull it off, but we did it and we delivered on all of our strategic promises.”

For fiscal 2024, SAP reported revenue of €34.17 billion ($35.66 billion) , up 10%, with cloud and software revenue growing 11%, to €29.83 billion ($31.13 billion). The share of more predictable revenue, indicating the business’s stability, increased four percentage points, to 81%, in the fourth quarter.

SAP raised its profit and revenue guidance for the year based on continued strength in its cloud business, aided by artificial intelligence. The company now expects operating profit to be between €10.3 billion and €10.6 billion ($10.75 billion to $11.06 billion), compared with its previous forecast of €10.2 billion.

The company also said cloud revenue will total €21.6 billion to €21.9 ($22.54 billion to $22.86 billion), up from previous guidance of €21.5 billion ($22.44 billion). The total cloud backlog now stands at €63 billion ($65.75 billion), up 40%.

“We expect accelerated double-digit total revenue growth and an expansion of operating profit through 2027,” Klein said. “We have all the right pieces in place.”

AI everywhere

The company said it’s also making progress on its plans to embed artificial intelligence throughout its product portfolio.  Klein said half of its cloud orders in the fourth quarter included AI features.

“C-suite executives see us as the leading AI company in Europe and among the top five globally,” he said. Referring to yesterday’s stock market rout triggered by news that Chinese startup DeepSeek had succeeded in replicating the features of leading large language models at a small fraction of the cost, Klein said the development was all good for SAP.

“Thanks to our ecosystem approach, we are flexible when it comes to AI infrastructure and large language modules,” he said. “We benefit from cost reductions and progress.”

The CEO made an oblique reference to a forthcoming “game-changing innovation” to be announced on Feb. 13.

“Too many companies have no complete view of their business, and without access to high-quality data, AI agents stay far below their potential,” he said. “We will address these challenges with one of the biggest innovations SAP has ever delivered.”

Klein said the product “will harmonize structured and unstructured data, SAP and non-SAP data with the relevant semantics, and make AI agents much more powerful. It will become the super orchestrator of these agents.”

Photo: SAP