The News: SAP’s Q3 revenue rose to €7.74 billion ($8.16 billion) in the third quarter of 2023, up 4% from €7.48 billion one year ago, as the intelligent cloud enterprise resource planning (ERP) software vendor announced its latest earnings on October 18 for the period ending September 30, 2023. SAP’s cloud revenue was up 16% in the quarter to €3.47 billion, and its S/4HANA Cloud revenue soared 67% to €914 million. Read the full Q3 earnings press release on the SAP investor relations website.
SAP Q3 Revenue Up 4% to €7.74 Billion as Cloud Growth Continues
Analyst Take: SAP’s Q3 revenue of €7.74 billion grew 4% YoY, giving the software vendor continuing sustained success in a crowded and still challenging global business marketplace. Sometimes the best way to beat your detractors is simply to perform well quarter after quarter, and that is exactly what SAP is doing under the leadership of CEO Christian Klein and his executive team. SAP also has reaffirmed its 2023 guidance and saw a very positive market reaction to its latest results, which is another bonus.
For SAP, cloud revenue increases again boosted SAP’s fortunes in Q3.
Here are SAP’s Q3 results by the numbers:
- IFRS Q3 2023 total revenue of €7.74 billion, up 4% from €7.48 billion for the same quarter YoY. The Q3 revenue missed analyst consensus estimates of €8.4 billion.
- Non-IFRS Q3 2023 cloud revenue of €3.47 billion, up 16% from €2.98 billion YoY.
- Non-IFRS Q3 2023 SAP S/4HANA Cloud revenue of €914 million, up 67% from €546 million YoY.
- Non-IFRS Q3 2023 gross profit of €5.77 billion, up 4% YoY.
- Non- IFRS Q3 2023 operating profit of €2.28 billion, up 10% from €2.08 billion one year ago.
- Non-IFRS Q3 2023 basic earnings per share (EPS) of €1.45 per share, up 30% YoY.
- Non-IFRS Q3 2023 gross profit margin of 74.5%.
- Non-IFRS Q3 2023 cloud gross profit of €2.56 billion, up 21% YoY.
- Non-IFRS Q3 2023 cloud gross profit margin of 73.7%.
- Q3 2023 current cloud backlog of €12.27 billion, up 19% YoY.
SAP Q3 Revenue Insights
SAP’s Q3 earnings results continue to show that the company is on a smart path for ongoing growth, maintaining its transition to the cloud to better serve its customers wherever they want to connect with SAP products and services. For a major enterprise software vendor such as SAP, the move to the cloud is no small exercise but the company’s commitment is being rewarded with fresh migrations among existing customers as well as with the securing of new customers in a crowded marketplace.
In the time we spent with SAP CEO Klein earlier this quarter, it was abundantly clear how much he cares about maintaining SAP’s technology leadership while delivering the innovation for its customers on a timeline that is manageable. We believe that this is evident in the company’s AI and generative AI strategies, which should help lead to continued growth and market strength for SAP.
So, where is the evidence that SAP is meeting customer demand? We believe the evidence is in the Q3 numbers, which showed another 16% increase in overall cloud revenue to €3.47 and in its SAP S/4HANA Cloud revenue of €914 million for Q3, which jumped 67% from €546 million YoY. These healthy increases and growth in services show that SAP’s products are helping customers to succeed and solve their business challenges while inspiring deployment growth and customer loyalty. For SAP, we see those numbers providing the proof that its offerings in the marketplace are working.
SAP’s Continuing 2023 Financial Guidance
SAP’s Q3 financials also contain reaffirmed guidance for the company’s full year 2023 earnings.
For FY2023, SAP said it continues to expect €14 billion to €14.2 billion in cloud revenue at constant currencies, up 23% to 24% at constant currencies compared to €11.43 billion in 2022.
The company also expects between €27 billion and €27.4 billion in cloud and software revenue combined, up 6% to 8% at constant currencies.
SAP said it expects €8.65 billion to €8.95 billion in non-IFRS operating profit at constant currencies, up 8% to 12% at constant currencies. Free cash flow is expected to be about €4.9 billion compared to €4.4 billion YoY.
SAP Q3 Revenue Overview
Germany-based SAP, which does much of its business in Europe, has seen some big revenue hits over the last several years due to the COVID-19 pandemic that began in early 2020 and the Russian invasion of Ukraine that began in February 2022. SAP saw revenue declines when it imposed business shutdowns in Russia and Belarus after the start of the war and we see these impacts continuing to affect the company.
Yet, as we have said previously, despite those economic challenges SAP is continuing to grow and accelerate in the marketplace, putting itself in a stronger business position. Much of this success and tenacity comes from SAP’s moves into cloud services over the last few years, where it found a sustainable and growing niche within its growing customer base. Those smart decisions are paying important dividends for the company’s bottom line, and we expect this success to continue based on its robust business strategy.
We continue to remain bullish on SAP and will watch with interest as it finds new ways to serve its customers into 2024 and beyond.
Daniel Newman and his co-host of The Six Five Webcast, Patrick Moorhead of Moor Insights and Strategy discussed SAP’s latest 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.
Other insights from The Futurum Group:
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SAP Q2 Revenue Reaches €7.55 Billion, up 5%, as Cloud Climbs
Author Information
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.
