SAP reports cloud growth that falls short of expectations

[BERLIN] SAP reported quarterly cloud and software sales that fell just short of estimates as tariff insecurities weighed on Europe’s most valuable company.

Cloud and software revenue increased 11 per cent to 7.97 billion euros (S$912 billion) in the period ended Jun 30, the Walldorf, Germany-based company said on Tuesday (Jul 22). That missed analysts’ average estimate of 7.99 billion euros, according to data compiled by Bloomberg.

While the company maintained its annual forecast for cloud revenue, it expects currency fluctuations to hurt that growth by 3.5 percentage points.

“As we move into the second half, we remain cautiously optimistic, keeping a close eye on geopolitical developments and public sector trends,” chief financial officer Dominik Asam said.

SAP sells software to companies to run business functions such as finances, human resources and procurement. Over the past few years, it has promoted artificial intelligence services to encourage clients to shift from legacy on-site servers to IT infrastructure in the cloud, where average spending per client is higher.

The company has shown resilient cloud growth in the face of geopolitical instability, as customers who decide to move to the cloud typically commit to complex, multiyear migration projects that cannot easily be dialled back. SAP’s stock has soared 40 per cent over the past year, and the company has surpassed Dutch chip machine maker ASML Holding to become Europe’s most valuable business.

SAP’s largest market is the US, which represents more than 30 per cent of its sales. The weakened US dollar led to currency pressures for the company.

Cloud revenue increase 24 per cent to 5.1 billion euros, excluding currency fluctuations, which was slightly below analysts’ expectations.

SAP’s cloud backlog, an indicator of future cloud sales, increased to 18.1 billion euros in the second quarter, missing analysts’ expectations of 18.5 billion euros. The number measures how much cloud revenue SAP signed to come in over the next 12 months.

The company also said it “continues to expect current cloud backlog growth at constant currencies to slightly decelerate in 2025”.

The company’s American depositary receipts declined about 1.5 per cent in extended trading after the results. The receipts closed at US$306.29 in New York.

The bigger risk to SAP’s stock from currency fluctuations will be the outlook for next year, said Rob Hales, a senior equity analyst at Morningstar. “It could move the stock when we start getting indications from management on the potential impact of currency next year.”

Incentives SAP has promised to customers for their cloud migration are likely to have increased significantly, UBS Group analysts said in a note last week. This “has boosted cash inflow in the first quarter”, but will hurt it next year, when the payout is due. BLOOMBERG