The News: SAP’s first fiscal quarter (Q1) 2024 revenue reached €8.04 billion, or roughly $8.58 billion, up 8% during the same period a year ago and up 9% in constant currency (CC). SAP’s earnings per share (EPS) mark of $0.88 fell short of analysts’ expectations of $1.11 per share. However, the company’s strong revenue performance was the result of a 25% year-over-year (YoY) increase in cloud revenue, reaching €3.9 billion, up 25% on a CC basis, and a current cloud backlog of €14.2 billion, up 27% YoY. You can read the financial release detailing SAP’s Q1 results on SAP’s website.
By the numbers:
Here are SAP’s Q1 2024 results by the numbers:
- Total revenue of €8.0 billion, up 8% YoY and 9% YoY on a CC basis
- Cloud and software revenue of €7.0 billion, up 9% YoY and 11% YoY on a CC basis
- Cloud revenue of €3.9 billion, up 24% YoY and 25% YoY on a CC basis
- Cloud ERP Suite revenue of €3.2 billion, up 31% YoY and 32% YoY on a CC basis
- Non-IFRS cloud gross profit of €2.8 billion, up 27% YoY and 28% YoY on a CC basis
- Non-IFRS operating profit of €1.5 billion, up 16% YoY and 19% YoY on a CC basis
- Non-IFRS Basic EPS of €0.81, up 8% YoY
- Current cloud backlog of €14.2 billion, up 27% YoY and 28% YoY on a CC basis
SAP’S Strong Q1 2024 Revenue Driven by Cloud and Business AI Demand
Analyst Take: SAP announced its financial results for Q1 ending March 31, 2024, posting strong topline revenue growth, impressive growth in cloud revenue, and a strong cloud backlog, which represents the deals that have been booked but not yet realized on a financial basis. The company has continued its focus on helping customers move to its cloud-based offerings, which it believes will drive more efficiencies and higher margins, while enabling greater functionality through its Business AI offerings.
SAP Q1 2024 Revenue Insights
SAP reported strong earnings for the first quarter of the year, with topline revenue growth of 8% YoY and 10% YoY in CC, to reach €8.0 billion for Q1 2024. This revenue growth was largely due to the 24% YoY increase in Q1 cloud revenue, which totaled €3.9 billion. Even more impressive was SAP’s Cloud ERP Suite revenue of €3.2 billion, which was up 31% YoY and 32% YoY on a CC basis. “The Cloud ERP Suite contains all the modules for the company’s core processes from finance, spend management, HR, supply chain, commerce, and the company’s business technology platform, including data and analytics,” said Christian Klein, SAP CEO, in an earnings call to investors and analysts.
The strength in cloud is expected to continue, as SAP’s current cloud backlog increased by 28% on a CC basis to €14.2 billion during the quarter. This backlog figure represents contractually committed cloud revenue that the company expects to recognize in the next year.
SAP reported an operating profit of €1.5 billion on a non-IFRS basis, an increase of 16% YoY and 19% YoY in CC terms. This figure was negatively impacted by the imposition of a one-time €2.2 billion restructuring provision taken during the quarter, which was implemented to refocus the company’s workforce on artificial intelligence (AI) skillsets and roles.
Key Growth Drivers for SAP
CEO Klein highlighted three growth drivers for SAP:
- RISE with SAP, the program designed to help move SAP’s large-enterprise installed base to the cloud
- GROW with SAP, the company’s initiative for small and midsize business (SMB) and mid-market new customers to entice them to use SAP
- Business AI, which incorporates new AI innovations that have been developed or will be released in the years ahead
According to Klein, AI will be infused across the entire SAP product portfolio, and SAP’s generative AI assistant Joule will be used to provide an enhanced user experience on the front end.
Klein added that SAP expects to benefit from the increasing use of generative AI across its platform and will be moving to incorporate consumption-based pricing in the future, given the higher costs of deploying that technology. However, he expects that the functionality will clearly generate ROI for customers, which should help drive customers to the higher priced SKUs that include generative AI and to the cloud, where the most advanced features will be implemented.
SAP’s 2024 Financial Guidance Confirmation and 2025 Outlook
In addition to its current results, SAP reaffirmed its continuing 2024 financial guidance. For 2024, SAP continues to expect:
- €17.0 – €17.3 billion cloud revenue at constant currencies (2023: €13.66 billion), up 24% to 27% at constant currencies
- €29.0 – €29.5 billion cloud and software revenue at constant currencies (2023: €26.92 billion), up 8% to 10% at constant currencies
- €7.6 – €7.9 billion non-IFRS operating profit at constant currencies (2023: €6.51 billion based on updated non-IFRS operating profit definition), up 17% to 21% at constant currencies
- Free cash flow of approximately €3.5 billion (2023: €5.09 billion)
- An effective tax rate (non-IFRS) of approximately 32% (2023: 30.3% based on updated tax rate definition [non-IFRS])
Rising with SAP
All told, this was another strong quarter for SAP. When excluding the one-time restructuring charge – which we believe was necessary to help the company refocus its workforce to attract and retain workers with the appropriate AI skills – the fundamentals of the company look strong.
The company has noted that it has deployed more than 30 new AI use cases and it has more than 100 additional use cases in the pipeline that it expects to roll out by the end of the year. Its focus on the RISE with SAP and GROW with SAP initiatives are also expected to fuel revenue expansion, as these programs help push existing customers and prospects to the company’s cloud products while incorporating a set number of generative AI credits. SAP is banking on these customers deriving value from generative AI and expects that they will purchase additional AI credits, contributing to more topline growth for the company.
Ultimately, although SAP was light on detail with respect to the actual revenue contribution of AI to its revenue mix, we remain bullish on the ability of the company to convert its AI offerings to revenue in the future. SAP’s Joule works out of the box to deliver value, and the customer can choose between a variety of models, including SAP’s open-source models, to suit the customer’s use case and scenario. Further, SAP says its models are deeply integrated with data security from SAP, ensuring that they can be safely used in an enterprise environment. As previously mentioned, as the number and variety of AI use cases expand, Klein expects that customer usage of Joule will also increase, thereby driving an uptick in the purchase of premium SKUs.
We expect that SAP will continue its upward trajectory, driven by both enthusiasm for the company’s strong capabilities and the desire to leverage the benefits that come with a modern, flexible, and powerful cloud deployment. The lynchpin, of course, is ensuring that SAP can demonstrate to customers and prospects that a move to the cloud will be worth the short-term implementation challenges and costs that are invariably associated with a massive migration.
Daniel Newman provides insights into the latest SAP earnings on X:
A good start to the year for SAP in its 2024 Q1.
I’ve been saying for the past several quarters the numbers to watch are the cloud related numbers.
Cloud Revenue ⬆️ 24%
Cloud ERP Suite ⬆️ 31%AI was well covered in the call but no number given in terms of impact on revenue.… https://t.co/WwjvwvYPrz
— Daniel Newman (@danielnewmanUV) April 23, 2024
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.
Other Insights from The Futurum Group:
SAP Announces AI Capabilities to Improve Retail Business Processes
SAP’s Generative AI Copilot, Joule, Coming to SAP Applications
SAP Meets or Exceeds All Key Financial Metrics for FY 2023
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.
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.
