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SAP’s US Certificates of Deposit have gained 30% this year.
The time of dreams
SAP shares tumbled on Thursday after the German enterprise software giant reported financial results for the June quarter that fell short of Wall Street estimates.
“It was another strong quarter,” CEO Christian Klein said. “We see significant opportunities ahead, especially through the transformative power of AI.”
Despite Klein’s characterization, the results did not meet the consensus estimates. For the second quarter ended in June,
SAP
(symbol: SAP) posted revenue of 7.5 billion euros, or $8.35 billion, up 5%, or 8% adjusted for currency effects, below the Wall Street consensus forecast as tracked by FactSet at 7.6 billion euros. Earnings on an adjusted basis amounted to €1.07 per share, below the consensus of €1.17 per share. Under standard accounting, the company earned €0.62 per share.
On an adjusted basis, operating income amounted to 2.1 billion euros, up 23% or 28% adjusted for currency effects. The company said the cloud backlog was 11.5 billion euros, up 21%, or 25% adjusted for currency.
SAP, which sells finance, human resources and logistics software to large enterprises, continues to push customers to upgrade to cloud versions of its software: cloud revenue in the quarter was 3.3 billion euros, up 19% or 22% at constant exchange rates.
SAP has slightly reduced its cloud revenue forecast for the full year. Cloud revenues now range from €14 billion to €14.2 billion, down from a previous range of €14 billion to €14.4 billion. But SAP now sees adjusted operating profit at constant currency of 8.65 billion euros to 8.95 billion euros, slightly increasing the range of 8.6 billion euros to 8.9 billion euros previously.
In an interview with Barrons, SAP Chief Financial Officer Dominik Asam said the quarter’s results were hurt by some headwinds in the company’s more transactional businesses, such as Concur, an employee expense management tool, and Fieldglass, which is used to manage contract workers. He also noted that the cautiousness of some customers caused some projects to slip from the second quarter to the third quarter.
On a call with reporters, CEO Klein underscored the promise of the company’s push toward generative AI software. He said AI is expected to grow the company’s total addressable market to $1 trillion by 2028, up from a previous forecast of $500 billion.
asam said Barrons that while the company is considering different go-to-market models with new AI tools, he noted that “AI is not something you get for free, the value can be very significant and we will price it accordingly.”
Earlier this week, SAP announced that it has invested in three companies working on large language models, including Anthropic, Cohere, and Aleph Alpha. The company said at the time that the investments “strengthen SAP’s open ecosystem approach to AI, leveraging best-in-class technology to embed AI across the entire SAP portfolio.”
SAP will join a growing group of other corporate investors taking stakes in generative AI ventures.
Alphabet
(GOOGL),
Selling power
(CRM), and
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(ZM) all invested in Anthropic; Investors in Cohere include rivals SAP Salesforce and
Oracle
(ORCL), as well as the chipmaker
Nvidia
(NVDA); meanwhile, Aleph Alpha recently struck a deal with
Hewlett Packard Enterprise
(HPE) to develop large language models.
U.S.-listed SAP shares fell 6.3% to $133.93 on Thursday.
Write to Eric J. Savitz at eric.savitz@barrons.com