The News: SAP has announced its financial results for the second quarter of 2024, reporting significant growth in cloud revenue, backlog, and overall profitability. The current cloud backlog has reached €14.8 billion, up 28%, and cloud revenue has increased by 25% to €4.15 billion. The company also highlighted major customer migrations to S/4HANA via its RISE and GROW with SAP initiatives.
You can read the full press release on the SAP Website.
By the numbers:
- Total revenue of €8.3 billion, up 10% YoY and 10% YoY on a CC basis.
- Cloud and software revenue of €7.2 billion, up 10% YoY and 10% YoY on a CC basis.
- Cloud revenue of €4.2 billion, up 25% YoY and 25% YoY on a CC basis.
- Cloud ERP Suite revenue of €3.4 billion, up 33% YoY and 33% YoY on a CC basis.
- Non-IFRS cloud gross profit of €3.0 billion, up 28% YoY and 29% YoY on a CC basis.
- Non-IFRS operating profit of €1.9 billion, up 33% YoY and 35% YoY on a CC basis.
- Non-IFRS Basic EPS of €1.10, up 59% YoY.
- Current cloud backlog of €14.8 billion, up 28% YoY and 28% YoY on a CC basis.
SAP Q2 2024 Cloud Revenue Soars Amid Ongoing Restructuring
Analyst Take: SAP’s Q2 2024 earnings period was marked by strong growth across the board, with total revenue of €8.3 billion, surpassing market expectations of €8.25 billion. The company’s latest quarterly results highlight a robust performance in its cloud segment, with cloud revenue increasing by 25% year-over-year to €4.15 billion. This growth is primarily driven by the Cloud ERP Suite, which saw a 33% increase to €3.41 billion. The surge underscores the rising demand for SAP’s cloud solutions as businesses prioritize digital transformation.
The strategic offerings within the Cloud ERP Suite, including SAP S/4HANA Cloud and SAP Business Technology Platform, have driven this revenue growth. These solutions cater to various business needs, from HR and payroll to commerce and customer data management, ensuring a comprehensive and integrated approach to enterprise resource planning. SAP’s ability to offer a suite of tightly integrated cloud services allows customers to seamlessly manage their business processes and achieve higher efficiency and agility.
Expanding Cloud Backlog
The current cloud backlog stands at an impressive €14.8 billion, reflecting a 28% increase compared to the previous year. This substantial growth in backlog indicates a strong pipeline of committed revenue, ensuring a predictable and stable revenue stream for the future. The backlog growth also highlights the continued trust and investment of SAP’s customers in the company’s cloud offerings, showcasing SAP’s leadership and reliability in the cloud ERP market.
SAP’s focus on expanding its cloud offerings and securing long-term contracts has been crucial in building this robust backlog. The company’s strategy to lock in multi-year commitments from clients underscores its ability to deliver consistent and value-driven cloud services that meet evolving business needs. The increasing backlog not only assures future revenue but also reflects the growing confidence of enterprises in SAP’s capability to drive their digital transformation journeys.
Profitability Amid Restructuring
SAP’s profitability metrics for Q2 2024 showcase a mixed impact due to ongoing restructuring efforts. While the IFRS operating profit decreased by 11% to €1.22 billion, largely due to restructuring expenses amounting to €0.6 billion, the non-IFRS operating profit saw a significant increase of 33% to €1.94 billion. This divergence underscores the underlying strength of SAP’s core business operations and its ability to generate profits despite short-term restructuring costs.
The restructuring program, aimed at enhancing scalability and focusing on strategic growth areas such as Business AI, is expected to yield long-term benefits. SAP anticipates incremental efficiency gains and has increased its operating profit ambitions for 2025, reflecting the positive outlook post-restructuring. The restructuring is projected to impact 9,000 to 10,000 positions, primarily through voluntary leave programs and internal reskilling measures.
We believe that SAP’s mixed profitability metrics for Q2 2024 reveal the impact of current restructuring efforts and the resilience of its core operations. While IFRS operating profit decreased by 11% to €1.22 billion due to €0.6 billion in restructuring expenses, the 33% increase in non-IFRS operating profit to €1.94 billion highlights the strength and resilience of SAP’s core business operations.
AI’s Contribution to Revenue
AI has emerged as a critical growth driver for SAP in Q2 2024. Integrating Business AI into SAP’s cloud solutions has facilitated new deals and enhanced customer engagements. Notably, AI advancements in SAP’s supply chain solutions are expected to drive productivity, efficiency, and precision in manufacturing processes. AI-driven insights from real-time data will enable companies to make better decisions, streamline product development, and improve overall operational efficiency.
SAP’s commitment to embedding AI across its product portfolio is evident in its recent announcements. On April 22, 2024, SAP introduced AI enhancements in its supply chain solutions, promising transformative productivity gains. Additionally, SAP’s collaboration with IBM, announced on May 8, 2024, aims to integrate generative AI capabilities into industry-specific cloud solutions, further enhancing client business value. These initiatives highlight SAP’s strategic focus on leveraging AI to deliver cutting-edge solutions that meet the complex demands of modern enterprises.
Furthermore, we believe that SAP’s strategic integration of AI significantly enhances its technological capabilities and market competitiveness. The deployment of Business AI across SAP’s cloud solutions facilitates advanced data analytics, real-time decision-making, and automation, which are critical for modern enterprises.
This technological advancement positions SAP to drive innovation in supply chain management, customer relationship management, and enterprise resource planning. Additionally, AI-driven efficiencies are expected to reduce operational costs and improve productivity, thereby providing a substantial boost to SAP’s value proposition and long-term growth potential.
Customer Migrations to S/4HANA via RISE and GROW
SAP’s initiatives, RISE with SAP and GROW with SAP, continue to gain traction among clients seeking to modernize their ERP systems and migrate to the cloud. In Q2 2024, several key customers, including BMI Group Holdings, Co-op, and Pure Storage, successfully went live on SAP S/4HANA Cloud. These migrations reflect the growing adoption of SAP’s comprehensive cloud ERP solutions, which offer speed, predictability, and continuous innovation.
The Rise with SAP and GROW with SAP programs are designed to simplify the transition to cloud-based ERP systems, providing customers with a structured and efficient migration path. These initiatives have been instrumental in SAP’s ability to secure new customers and expand its footprint in the cloud ERP market. By offering a clear roadmap for digital transformation, SAP helps businesses minimize disruption and maximize the benefits of their cloud investments.
Regional Performance
- EMEA: SAP’s cloud revenue in the EMEA region grew by 32% to €1.67 billion, driven by strong performance in Germany and other parts of Europe. The region’s robust growth is attributed to the increased adoption of SAP’s cloud solutions among enterprises seeking to enhance operational efficiency and competitiveness.
- Americas: The Americas region saw an 18% increase in cloud revenue to €1.91 billion, with notable contributions from the United States. The growth in this region highlights SAP’s ability to cater to the diverse needs of businesses across various industries, leveraging its extensive portfolio of cloud services.
- APJ: The Asia Pacific Japan (APJ) region reported a 33% rise in cloud revenue to €0.57 billion, showcasing robust growth in markets such as Japan, India, and South Korea. The APJ region continues to be a key growth market for SAP, driven by the increasing digital transformation initiatives across the region.
Key Customer Wins and Expansions
In Q2 2024, SAP secured several key customer wins, reinforcing its leadership in the cloud ERP market. Notable customer wins include:
- RISE with SAP: Alpargatas, Auckland Council, Blue Diamond Growers, and ExxonMobil are among the clients that have adopted RISE with SAP for their end-to-end business transformations. These engagements underscore the effectiveness of SAP’s RISE initiative in helping organizations navigate their digital journeys.
- GROW with SAP: Consolidated Hospitality Supplies, flatexDEGIRO, and Fortera Corporation chose GROW with SAP to accelerate their cloud ERP adoption. These wins highlight the appeal of SAP’s GROW initiative, which offers a scalable and flexible approach to cloud ERP deployment, enabling rapid adoption and continuous innovation.
These customer wins highlight SAP’s ability to deliver value through its cloud solutions, enabling businesses to achieve their digital transformation goals. The diverse range of industries represented in these wins further demonstrates the versatility and applicability of SAP’s offerings across different market segments.
Accelerating with SAP
With SAP’s improved guidance outlook due to lower opex and AI capabilities, the company’s Q2 2024 results demonstrate its strong performance in the cloud segment. The substantial growth in cloud revenue, which saw a 25% increase to €4.2 billion, and the impressive backlog of €14.8 billion reflect the effectiveness of SAP’s cloud strategy. The significant customer wins, including high-profile names adopting SAP’s S4/Hana via Rise and Grow, further solidify its leadership in the enterprise software market.
The integration of AI capabilities has been a critical factor in SAP’s recent successes. AI enhancements across SAP’s cloud solutions have facilitated advanced analytics, automation, and real-time decision-making for customers. These technological advancements not only improve operational efficiencies but also drive innovation in key areas such as supply chain management, customer relationship management, and enterprise resource planning. By embedding AI into its core offerings, SAP is positioning itself at the forefront of the digital transformation landscape, providing clients with cutting-edge tools to enhance their business processes.
Financial Outlook for 2024
SAP has reiterated its financial outlook for FY 2024, projecting cloud revenue between €17.0 billion and €17.3 billion at constant currencies, representing an increase of 24% to 27%. The company also aims to achieve a non-IFRS operating profit of €7.6 billion to €7.9 billion, reflecting a 17% to 21% growth at constant currencies.
The positive financial outlook is supported by SAP’s strong cloud momentum, strategic focus on AI, and successful customer migrations to cloud ERP solutions. Despite the ongoing restructuring efforts, SAP is well positioned to capitalize on efficiency gains and expand its leadership in the enterprise applications and cloud market. The company’s commitment to driving innovation and delivering customer value remains a cornerstone of its growth strategy.
Daniel Newman and his co-host of The Six Five Webcast, Patrick Moorhead of Moor Insights and Strategy discusses SAP’s earnings in their latest episode. Check it out here and be sure to subscribe to The Six Five Webcast so you never miss an episode.
Disclosure: The Futurum Group is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article.
Analysis and opinions expressed herein are specific to the analyst individually and data and other information that might have been provided for validation, not those of The Futurum Group as a whole.
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Author Information
Keith has over 25 years of experience in research, marketing, and consulting-based fields.
He has authored in-depth reports and market forecast studies covering artificial intelligence, biometrics, data analytics, robotics, high performance computing, and quantum computing, with a specific focus on the use of these technologies within large enterprise organizations and SMBs. He has also established strong working relationships with the international technology vendor community and is a frequent speaker at industry conferences and events.
In his career as a financial and technology journalist he has written for national and trade publications, including BusinessWeek, CNBC.com, Investment Dealers’ Digest, The Red Herring, The Communications of the ACM, and Mobile Computing & Communications, among others.
He is a member of the Association of Independent Information Professionals (AIIP).
Keith holds dual Bachelor of Arts degrees in Magazine Journalism and Sociology from Syracuse University.
Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.
From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.
A 7x Best-Selling Author including his most recent book “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor.
An MBA and Former Graduate Adjunct Faculty, Daniel is an Austin Texas transplant after 40 years in Chicago. His speaking takes him around the world each year as he shares his vision of the role technology will play in our future.
